Global equities brace for oncoming Covid second wave

Berkeley Group
Global equities brace for Covid second wave

On something of a post-lockdown high – and with latent second wave fears – markets and consumers almost wished to manifest putting Covid in the rear-view-mirror over the summer period, with some bold equities recoveries and the gradual resumption of work life and recreational activities. Since the end of last week, however, this fleeting euphoria has been extinguished by the realisation that Covid deaths are rising once again, and our tussle with the virus is far from over.

Global equities looking blue around the gills on Monday

With a new daily record of 13,500 new cases being recorded in France, and numbers around the 4,000 mark each day being recorded in the UK, the truth markets knew but didn’t want to hear was finally accepted on Monday.

With almost a quarter of the UK population now contained in ‘local’ lockdowns, and warnings that the country is at a ‘critical point’ and is ‘heading in the wrong direction’, the FTSE shed 2.84%, down to 5,836 points – its lowest level in more than a fortnight. Losses were felt most acutely in the hospitality and services laden FTSE 250, though, with the index seeing its equities shed 3.14% as the week’s trading began.

Similarly, in mainland Europe, France’s CAC continued its considerable Friday fall, down by an additional 2.08%, to 2,874 points. Meanwhile, the German DAX picked up the pace on Friday’s slump, down 2.40% on Monday morning, to 12,801.

The picture was also pretty bleak in Asian equities, with Hong Kong’s Hang Seng posting a 2.06% dip and Shanghai’s SSE Composite booking a conservative 0.63% fall. Bucking the trend was Japan’s TOPIX, up 0.49% as the last bell sounded on Monday.

Even if there was no particular rationale for these losses happening as they did on Monday morning, it is likely the hands of global equities were reluctantly forced by the weight of fearful headlines, which began chain reactions as one fell after another.

What will be important to watch is how news of a Covid second wave affects the open of the Dow Jones later on Monday, with Spreadex Financial Analyst, Connor Campbell, saying this on the US equities open:

“In the US fresh cases keep approaching 50,000, while the number of deaths has now crossed 200,000. Yet, if the futures are anything to go by, American investors aren’t quite as fearful as their European peers – the Dow Jones is set to fall a comparably light 1.2%, sending it back towards 27300.”

“It’ll be interesting to see whether those losses accelerate once the bell rings on Wall Street, especially since every day that Congress fails to agree on a new fiscal stimulus plan, the US economic recovery is further endangered.”

Trends to look out for with a Covid second wave

If a second wave – and ensuing restrictions – do indeed come into effect, there are two trends I’d recommend traders and consumers to look out for.

First, March mark two. While we now know what a lockdown looks like, and how it impacts our lives and businesses, the fact remains that news of such a development will be a disaster for most companies. What we should take from this is that while perhaps more adequately more priced in than in March, the trends of a second wave and lockdown might broadly mirror those we saw earlier in the year.

What this means is the potential for a fire sale across many typically high-performing or volatile stocks, which might then desperately recover (note Tesla’s movement from $365 to $1550 inside three months) , and the potential for a big tech renaissance. Indeed, should we see a repeat of lockdown part one, shares in FANMAG are likely to enjoy another day in the sun, with people stuck at home turning to tech solutions for their retail, entertainment and work activities.

Second, the Christmas bubble could be popped. With many retail, services and hospitality equities likely hoping for a Christmas resurgence – as consumers release more pent up spending energy on festivities and gift-buying – a Covid second wave might prove fatal to a period of strong potential sales. With high street footfall being extinguished by a second lockdown, markets and eateries would be empty and the physical gift-buying rituals would be staved off for yet another year.

Now, should these events transpire, it would be a serious blow and in I’m sure a curtain call for many, with January blues being a traditionally woeful time for hospitality and services. What we might take as a glimmer of positivity, however, is the potential for bargains, as companies desperately attempt to cling onto consumer activity in what might well be a quiet Christmas.

Overall, there is much we don’t know about the virus, and indeed the potential for a Covid second wave. What we do know is that cases, hospital admissions, and deaths are rising, and it is better to face it – and corresponding restrictions – prepared, rather than in denial.