In March last year, at the height of the COVID panic, financial and economic pundits started forecasting the shape of the recovery. If graphed, our economic recovery was compared to an alphabetic letter for ease of understanding. Talk of ‘U-Shaped recovery’, ‘L-Shaped recovery’ and ‘V-Shaped recovery’ became watercooler topics (admittedly not for everyone!).
Of all the options forecast, the “V-Shaped recovery’ is clearly the most favourable. The concept of a rapid decline in sharemarkets, economic growth indicators and employment followed by an equally sharp recovery was desired but seen as very ambitious in mid- 2020. However, maybe that is exactly what has happened.
In relation to shares, we are currently working through profit season. In recent weeks, almost without exception, major blue chip Australian companies have reported better than expected results. BHP, CSL, Coles, Wesfarmers, the banks – all reporting above estimate profit figures. Of course, there will be industries – think travel, tourism – that won’t be as lucky, but for the broader sharemarket, the rapid rebound has caught most by surprise.
Other economic key measures are continuing to surprise on the upside. House prices are starting to rise, deferrals on business loans and mortgage repayments are falling rapidly and unemployment figures are improving quicker than expected (down to 6.4% from 7.4% at it’s worst point). The rollout of the vaccine and the RBA’s efforts to continue to prop up the economy at all costs continue to provide a buoyant mood looking forward.
Again, relating to shares, it’s difficult to see what might derail this enthusiasm. Good results, stimulatory RBA actions and the TINA Effect (There Is No Alternative) are seeing steady inflows. I will be watching with interest to see the impact of winding back JobKeeper at the end of March (along with the end of insolvency trading relief laws), although this is less likely to impact larger, ASX-listed companies.
There’s never a dull moment in investment markets and economics, but it is certainly nice to have a short period where everything is heading in the right direction. Need advice when it comes to investing? Contact one of our advisers today for a free no-obligation chat.
