It has been a strong couple of days on the stock market. In fact, Tuesday was the second best day ever in the c25 years that the FTSE has maintained its all-world index. It is worth remembering, though, that the biggest ever one day gain back in 2008 was more a result of the preceding days having been so relentlessly negative, rather than any fundamental improvement in the economy. From that point, markets still had a long way to fall.

Whatever this current bounce means for us in the short term, I remain optimistic long term and I feel that there must be some excellent investment opportunities knocking around right now. My working assumption is that the COVID growth curve will be flattened and eventually bent downward in three to six months, depending on:

  • How well people self isolate,
  • How well we can test, identify, and separate those with the disease,
  • The degree to which warmer seasonal weather might dampen the spread, and
  • The development of an effective vaccine

I think we are also set for a steady stream of negative news flow, including:

  • Business closures,
  • Job losses,
  • Supply chain disruption,
  • Share placings and equity dilution as companies increase cash cushions,
  • Strained health services.

The spread of COVID and society’s reaction to it is doing funny things to the economy. For health and safety reasons, we are essentially imposing a recession upon ourselves.

The UK flash PMI readings for March showed the biggest hit to output since their launch more than two decades ago. The composite PMI fell to 37.1 (from 53.0 in February) and is consistent with GDP contracting by between -1.5% and -2% quarter-on-quarter. New orders fell at the fastest pace since 2008 and business expectations were at the lowest ever.

The manufacturing PMI fell from 51.7 to 48.0 and the Services PMI collapsed from 53.2 to 35.7, with the greatest weakness in hotels & restaurants, sports centres, and transport and travel.

Many hospitality businesses are suffering and a lot might not survive these conditions. That said, pub companies such as Fuller Smith & Turner (LON:FSTA), Mitchells & Butlers (LON:MAB) and Marston's (LON:MARS) have been around for more than a hundred years each (closer to two hundred, in Fuller’s case). I think they will continue to operate for a long time yet, although there is no doubting the seriousness of their current plight.

Placings, equity dilution…

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