Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Last December my partner offhandedly mentioned she’d read about quite a fast-moving virus spreading through China. Six months on and the trajectory of that story, as well as the human cost, have taken off to an extent few of us could have foreseen.

In terms of markets, as we reach the midpoint of the year what has the turbulent first half of 2020 taught us so far, what does the investment landscape look like now and how can we ready ourselves for whatever comes next?

Hindsight is 2020

First, let’s look at where these frenetic past few months have left markets. The indiscriminate sell-offs in the face of the initial virus spread have been recouped in many cases, especially in the US. After some of the steepest swings many of us have ever seen, the S&P 500 is now down just 1.3% over six months, and is actually up 7.8% since this time last year.

Heavy stimulus from the US Federal Reserve and optimism over the pace of an economic rebound have fueled market performance since March, with hopes countries will be able to avoid a spike in coronavirus cases as they reopen their economies. Initial efforts in the US show there is still a lot to be done if this is to be a long-term success.

Closer to home, the FTSE 100 is down 18% over six months and 13.8% since this time last year. The international nature of the FTSE and investors hesitant to leap back into big cyclical stocks in the index have kept a lid on the reversal seen in the US. However, the UK market’s recovery so far has been evident - whether the valuations in the face of reduced revenues are justified remains to be seen.

Lower down the cap scale, The FTSE 250 and AIM took a hammering initially because of their higher exposure to domestically-focused companies.

The FTSE AIM 100 is now down 7.5% over six months, with the bulk of its turnaround coming in the last three months, thanks to a 29.7% surge in the second quarter. The pick-up comes amid the proposed easing of restrictions, which will allow UK-focused businesses to reopen tentatively.

Big themes emerging

So that’s where we are but what have we learnt?

One thing that strikes me is how this year has accelerated changes already in motion. The tech giants growing quickly in recent years have advanced even more rapidly, as working from home prompts higher use of video conferencing and internal communication systems. As such, the tech-heavy Nasdaq index is the clear outlier in the US - up 19% this year and 34.3% since last June.

In the UK, the acceleration in change is most obvious in the retail sector. Capital-light online innovators like ASOS and Boohoo have bounced back from troughs with the latter seeing new share price highs. Old economy stalwarts like shopping centre-owner Intu, with sprawling footprints and low cash reserves, have borne the brunt of a consumer confined to their own four walls, speeding up their demise.

The rest of the year has the potential to widen these individual company fortunes, as cash dwindles on balance sheets and winners eye up the chance to increase their reach. Boohoo’s recent acquisition of Warehouse and Oasis could be a sign of opportunism we see more of heading into the back end of the year.

What next?

V, W, Z, L - there’s a bit of an obsession over predicting the shape the recovery will take. While we’re hoping the market and the economy bounce back to pre-virus levels quickly we shouldn’t allow this to outweigh reality. Businesses immediately backtracking on reopening in Florida, California and Texas have shown us it could take longer and be more gradual than we expect.

These are a few things I’ve spoken about recently with my colleague Tom Stevenson. You can catch up on his thoughts on the rest of the year in his latest Investment Outlook webcast on the 15 July.

And on the company front?

As investors, this is the time to stick to business fundamentals.

It’s tempting to look at the current situation through a top-down lens, after all it’s a global issue with wide-reaching consequences. But, bottom-up analysis is the only way to assess individual company strength and a firm’s ability to outlast the most uncertain business environment in recent memory.

Valuations may look stretched in places where money has looked for signs of growth and quality, and investors will need to revisit their companies with a focus on their cash position.

Many dividend-payers have called off midyear pay-outs to help bolster the balance sheet - this may prove prudent but we will still need to see who is ready to turn the taps back on when normality resumes, and who will be struggling then too.

Dividend cover, cash reserves and attention to how management is planning to bring supply chains back into full function will all stay important as long as uncertainty subsists.

If you’d rather outsource the research to a fund manager, have a look at the Fidelity Select 50 and our fund profile articles on the revamped Markets & Insights page.

Five year performance

(%) As at 30 June 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
S&P 500 21.5 20.6 11.9 13.9 10.1
FTSE 100 3.8 16.9 8.7 1.6 -13.7
FTSE AIM 100 1.4 45.6 18.9 -15.0 -3.7
Nasdaq 15.7 32.0 21.6 11.8 30.8

Past performance is not a reliable indicator of future returns

Source: FE, total returns as at 30.6.20, in GBP terms

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics covered

Active investing; GlobalNorth AmericaUKVolatility

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