A rolling pandemic puts the world into lockdown…

The start of the second quarter of 2020 saw the epicentre of the global Covid-19 pandemic shift from Asia to Europe. Governments handled the outbreak in different ways and with differing levels of success, but none escaped its clutches. By the end of the quarter, Europe was over the worst and the focus had moved across the Atlantic, to the US and Brazil in particular. Asia was by now into the recovery phase, albeit with periodic flare-ups along the way. The disease showed no respect for populism as an unprecedented shut-down of individual freedoms proved to be the only effective means of combating the virus. Countries that had endured SARS learned important lessons. Those countries that deferred difficult decisions or underestimated the invisible enemy are paying the heaviest price as the dramatic rise in infections in America, shown in the chart, confirms.

Source: Refinitiv, 30.6.20.

... causing worst downturn since the Depression...

Locking down whole economies, shutting all but essential services and confining whole populations to their homes was the only way to protect the most vulnerable and, crucially, the ability of national health services to cope with the surge in demand for intensive care beds and ventilators. The short-term economic impact was cushioned by unprecedented interventions by both governments and central banks. Millions of workers were paid to retreat into isolation at home. They stopped spending on pretty much everything other than food and drink. The impact on the countries with governments that could afford the enormous cost of this exercise is shown clearly in the chart. Britain’s economy shrank by more than a quarter between February and April. What happens when the protection is gradually lifted over the summer and autumn remains to be seen, but the worst unemployment since the early 1980s recession seems inevitable.

Source: Refinitiv, 15.4.20.

…but the stock market looks through the crisis

What has surprised many is the sanguine response of the financial markets to this economic devastation. The bear market between February and March was savage, with most benchmarks losing a third of their value in a few weeks. But even more remarkable has been the scale and speed of the recovery from this downturn. The US has led the bounce back thanks to the weighting of its stock market to the few sectors that might benefit from the profound social changes resulting from the pandemic - notably technology and healthcare. The tech-heavy Nasdaq index is now higher than it was at the beginning of the year and the broader S&P 500 index, shown here, is only a few percentage points down on its February high point. The comparison with the global financial crisis is stark. Massive stimulus and the relative strength of the financial system this time around has persuaded investors that this is not a repeat of 2008. Time will tell.

Source: Refinitiv, as at 30.6.20. Performance of S&P 500 in months from two previous peaks

Five year performance 

% (as at 30 Jun) 2015-16 2016-17 2017-18 2018-19 2019-20
S&P 500 4.0 17.9 14.4 10.4 7.5

Source: Refinitiv, as at 30.6.20 with income reinvested

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.


The views in this report are derived from a variety of sources within and outside Fidelity International. They are based on the house view of the Fidelity investment team, overseen by Paras Anand, Anna Stupnytska and Wen-Wen Lindroth. However, the report is written for a UK personal investing audience and the ideas are explicitly linked to the Select 50 list of our preferred funds. We consider this to be the best way for our investors to implement the ideas discussed in the Outlook. I would like to thank, in particular: Jeremy Osborne, investment director in Tokyo; Gary Monaghan, investment director in Hong Kong; Leigh Himsworth, portfolio manager; Ayesha Akbar, portfolio manager; Jeremy Podger, portfolio manager; Neil Cable, head of real estate; Andrea Ianelli, fixed income investment director; Kasia Kiladis, US investment director; Rebecca McVittie, emerging markets investment director; and Natalie Briggs, Europe investment director.

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