When an earthquake hits it is not clear if it is ‘The Big One’ or if there will be aftershocks. Earthquakes reflect the tectonic plates of Earth colliding with huge force, and are a good analogy for what is happening in investment markets as the force of an economic collapse collides with unprecedented fiscal and monetary stimulus.
March certainly did see and earthquake in markets, and we are all keen to understand if the current second wave of Covid infections will be an aftershock or ‘The Big One’.
This second wave is one reason why equity markets have been weak in September, with the US S&P 500 down nearly 10%. Although, like earthquake watchers, we know nothing with certainty, we do think this is more likely to be an aftershock than ‘The Big One’ which we think happened in March.