Nothing more certain than uncertainty

Flash Purchasing Manager surveys continue to highlight the impact the measures to counter the impact the virus is having on the global economy. However, the survey data for the US was at least no worse than expected. Economic uncertainty Index is an index developed that estimates the level of uncertainty about economic policy by accounting for newspaper references to uncertainty, tax codes, and disagreement among forecasters. Currently, the index is running higher than it was in 2009, even though it has fallen from its peak.

Analysts are trying to decide if this is a bear rally or the start of the next economic recovery. Bear markets often have points of recovery for a while before falling back once again, as investors look for false hope. The measures in place to support the global economy are not limitless, in the same way, one would assume the time everyone can be stopped from carrying on life in something of a normal way can be. Something has to eventually give, either the economy or the healthcare system.

The fall on Tuesday in the oil price, to a level that was unheard of in history, did seem to reach the point of peak fear as there has been something of a recovery in the past 24 hours.

Despite the continued economic gloom and the fact that US equities no longer look so attractive in valuation, equity markets remain underpinned. One of the many unknown factors is the potential for a vaccine. Gilead Sciences had been at the forefront of hopes for a quick vaccine, however despite some positive comments from Gilead that they had increased the size of the trials, later they announced that the first trials had not gone well. Finding a vaccine for this may be hope over experience.

In the past few years equity markets around the globe have got stuck in trading ranges, the years 2015/2016, and the years 2018/19 come to mind. Each period was defined by times when monetary optimism policy dominated, and the market rose, and then periods of economic concerns and the equity market slipped back.

We may be in another period as we will go through periods of optimism, hopes of vaccine and relaxation of lockdown and monetary stimulus, followed by periods of fear for the global economy. Most investors would take that with the uncertainty currently in place. We may be currently towards the top end of that range