Markets don’t like uncertainty, and there’s a tremendous amount of uncertainty right now with regard to how severe and how prolonged the impact could be, Robert Sharps writes on finews.first.
This article is published on finews.first, a forum for authors specialized in economic and financial topics.
Basically, I think people are starting to understand that management teams are really much more cautious at this point. They’re focused on contingency planning and business continuity as opposed to hiring and expansion. And I think individuals are at this point reevaluating many of their plans and are becoming more cautious. Travel, in particular, is being delayed and deferred.
When you overlay that on top of the fact that people were anticipating a recovery in earnings that we haven’t seen a tremendous amount of evidence of and some of the other uncertainties prevalent in the marketplace particularly around the U.S. presidential election, I think it’s reasonably natural you would expect a fair bit of volatility.
«We’re going through a process now where those expectations are being recalibrated»
We’d gone through a period of time where in 2019, returns were pretty robust in a number of areas in the markets and expectations were reasonably high. We’re going through a process now where those expectations are being recalibrated.
I anticipate at this point, more volatility. I think until we get a little bit more certainty with regard to when the behavior will revert to normal and where we get back to a little bit more business-as-normal, I think you could anticipate that we continue to have heightened levels of volatility. In terms of whether or not the volatility is creating a buying opportunity, I think to some extent it really depends on your time horizon.
«There are certain parts of the market that are really impacted in the short term»
It also depends on what areas of the market that you are looking at. There are certain parts of the market that are really impacted in the short term by the spread of the virus. Travel-related industries, hotels, gaming, airlines, many of those stocks are down 30, 40 percent. Industrials, which were already in a manufacturing recession partly as a result of the trade war, which again were anticipating a pickup in activity, that’s been delayed, and they can be impacted by some of the supply.
If you can find the companies that will ultimately emerge from this shorter-term or even intermediate-term disruption stronger, then you are getting a look to buy them at historically attractive valuations.
« I think there certainly is a scenario where the virus comes back in the fall and winter »
I don’t see any meaningful structural imbalances in the economy right now. I think there certainly is a scenario where the virus comes back in the fall and winter and we have to contend with this again. I think once we’ve been through this, we’ll know more. Human cost aside, I don’t see this having any meaningful or long-lived impact on the underlying economy.
It will be important from an investment perspective to be sure you’re investing in things that come out as strong or stronger on the other side of this. But I think when you look out certainly six months, 12 months, I don’t think that what we’re going through right now ultimately will alter the fundamental investment thesis of many or most of the things we’re invested in.
Robert Sharps is the Chief Investment Officer (CIO) at Baltimore-based asset manager T. Rowe Price.
Previous contributions: Rudi Bogni, Peter Kurer, Rolf Banz, Dieter Ruloff, Werner Vogt, Walter Wittmann, Alfred Mettler, Peter Hody, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Peter Hody, Albert Steck, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Peter Hody, Mirjam Staub-Bisang, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gerard Guerdat, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Adriano B. Lucatelli, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frederic Papp, James Syme, Dennis Larsen, Bernd Kramer, Ralph Ebert, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Will Ballard, Michael Bornhaeusser, Nicholas Yeo, Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Klaus Breiner, Ana Botín, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Claude Baumann, Markus Winkler, Konrad Hummler, Thomas Steinemann, Christina Boeck, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann, Christoph Sax, Felix Brem, Jochen Moebert, Jacques-Aurélien Marcireau, Peter Hody, Ursula Finsterwald, Claudia Kraaz, Michel Longhini, Stefan Blum, Zsolt Kohalmi, Karin M. Klossek, Nicolas Ramelet, Søren Bjønness, Lamara von Albertini, Andreas Britt, Gilles Prince, Fabrizio Pagani, Darren Willams, Salman Ahmed, Stephane Monier, and Peter van der Welle, Beat Wittmann, Ken Orchard, Michael Welti, Christian Gast, Didier Saint-Georges, Jeffrey Bohn, Juergen Braunstein, Jeff Voegeli, Gérard Piasko, Fiona Frick, Jean Keller, Stefan Schneider, Matthias Hunn, Andreas Vetsch, Fabiana Fedeli, Marionna Wegenstein, Kim Fournais, Carole Millet, Ralph Ebert, Lars Jaeger, Swetha Ramachandran, Brigitte Kaps, Thomas Stucki, Teodoro Cocca, Neil Shearing, Claude Baumann, Guy de Blonay, Tom Naratil, and Oliver Berger.
