A flurry of new Covid cases around the US has signalled renewed fragility in US markets, with yesterday’s falls reversing the past two weeks’ gains in the S&P 500.

The Dow Jones and Nasdaq indices fell in similar fashion, as the country saw its largest daily increase in new cases since the beginning of the pandemic. The uptick clouds the easing of lockdown measures, as political and business heads reconsider the wholesale reopening of the economy.

Firms were quick to reverse course, with Walt Disney advising its theme parks may stay closed for longer than anticipated, and the likes of Apple closing outlets in areas seeing an uptrend in virus cases.

The fresh concerns crossed the Atlantic, with bourses down in the UK and Europe, as investors eye the stymying effect a stagnant US could have on the global economic recovery.

The world’s major economies will draw upon the diverging success rates in US states in managing the virus - yesterday’s data showed those states keen to relax restrictions last month were the areas in which most new cases shot up. California, Florida and Texas all reached record virus highs.

Global growth in question

Also hitting markets are worries that the global economy could shrink by more than previous thought. The International Monetary Fund (IMF) revised its 2020 outlook downward, forecasting a 4.9% fall in global output against the 3% drop predicted in April.

Looking to next year, the revised forecast sees expectations of a 5.4% hike in growth versus the 5.8% suggested in April. The mood here is that the overall decline will be deeper than expected, with the recovery taking longer to play out.

Add into the equation the increasing pressure of US-EU trade negotiations and the threat of further tariffs between America and China, and we might just see markets take a tentative tone for the time being.

System one vs system two

For investors, these recent developments come as a reminder of how difficult the road back to normality will be, and how now is the time to make sure we are ready for it.

I’ve written before about the importance of accessing our thoughtful, deliberate, informed system two brain at times like these, and doing our best to ignore its impulsive, nervous, emotional system one sibling. As uncertainty persists, the temptation is to allow ourselves a day off from our long-term view in search of a short-term gain. Impulse management has never been so important.

Focusing on fundamentals

Finding value in troubled shares before a resumption of business as usual has attracted hobbyist traders and investors especially in the UK and US over the past few weeks, with many turning to frequent-trading apps during furlough.

While volatility can provide the opportunity to snap up well-loved companies at cheaper prices, trading often relies on market-timing, a notoriously difficult pursuit and one long-term investors are likely to eschew, instead focusing on the power of time in the markets.

In the long run, those choosing to give their money the chance to snowball through companies with consistent earnings growth, capable management and little debt should be rewarded. Jumping in and out of the market to replicate the same success requires immense luck and, as Fundsmith’s Terry Smith puts it, “There are two types of investor: those who can’t time the market, and those who don’t know they can’t time the market.”

If you are new to markets or could do with a reminder on the fundamentals of long-term investing, have a look at our Investing Principles page.

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. This information is not a personal recommendation for any particular investment. 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. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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