Market Forecast: Rebound

The markets have probably hit bottom after the consistent bad news from the COVID-19 Pandemic.  There are two reasons behind our positive market forecast for a rebound in 2021.

First, government policies in the major economies have been supportive and thus go a long way to restoring confidence.  This support can be seen in the US with the trillion dollar package, the UK with the 80% salary support package and central banks promising to do whatever it takes.  Today, there was an announcement of direct help to airlines such as Norwegian Airlines.   In addition, Germany just promised to back Italy.  We can see this as a highly positive development since an Italian default would pose contagion effects for the European Union.  In other words, Italy is too big to fail.

Second, evidence from China and now Italy show that the virus is coming under control.  Although policies and capabilities vary among countries, it is now seen as serious and resources are being thrown at the problem.  Particularly South Korea has managed to contain and mitigate economic damage to a large extent.

Our Market Call:  start to slowing enter back into the market.  Monetary and Fiscal stimulus by governments will put a floor on the market drop and build confidence for investors to come back into the game.  However, there are deflation risks.

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