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.

Markets have suffered a renewed bout of Covid-19 nerves this morning after UK authorities indicated that infection rates have risen and are now doubling every seven days.

The rise in infections is seen as likely to lead to tougher new lockdown measures, sending the FTSE 100 down more than 3% in morning trading. The German and French markets were also lower. The heaviest faller in the Footsie was IAG, the airline group, which fell round 12%, indicating that investors see further travel restrictions as likely.

Banks were also sharply down, reflecting the hit that more economic pain and the prospect of below-zero interest rates will inflict, but also new reports from the International Consortium of Investigative Journalists, that as much as $2trillion may have been laundered through global banks over several years.

In a televised statement this morning, UK health leaders made clear that the rest of the year is unlikely to bring much better news on the virus, with a six-month effort now needed to bring infections levels under control. The exact nature of further restrictions could arrive tomorrow, when the UK Government will provide its own Covid-19 update.

The slump in prices today will bring back unhappy memories of the start of the pandemic in February and March, when indexes suffered deep losses. Markets then rebounded for a period but have moved sideways through the summer. It’s clear that investors should brace for further volatility now.

Many will be asking themselves whether now is the time to sell. Before making a hasty decision, however, they should ask themselves - ‘If I sell, when will I buy in again?’ There will always be bad news for markets to worry about, so those hoping to sell down investments now will almost have to buy back in at a time when the outlook is still uncertain.

That’s the hard bit about trying to time markets. You don’t just need to get one call right, you need to get two. Selling out is the easy bit because you can do it and swim with the crowd at the same time. Buying back in, on the other hand, requires a contrarian approach that few, when it comes to it, are comfortable adopting.

Moreover, many stock markets remain underwater for the pandemic period as a whole - the US, which has surpassed its pre-Covid peak, being the exception - so selling now may mean locking in a loss.

The one note of optimism from the Covid-19 briefing today was the hopeful way in which health leaders spoke about the prospects of a vaccine. No one should count that chicken before it has hatched, of course, but the talk now is of trials showing the necessary immune system responses. If a successful vaccine emerges, markets may well respond positively and those still invested could benefit.

Investors would be wise to expect this pattern - of rising optimism punctured by regular bouts of bad news - to continue. Notwithstanding the latest stumble, the experience of the pandemic so far has been that staying the course and continuing to invest will pay off in the long term. Regular investors with a long time horizon can take advantage of dips to buy in at lower levels, meaning they benefit more when asset prices do recover.

Five year performance

(%) As at 20 Sept 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
FTSE 100 14.3 12.5 4.8 4.9 -15.0
IAG -27.9 45.7 19.7 -26.5 -74.9

Past performance is not a reliable indicator of future returns

Source: FE, total returns as at 20.09.20, 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. 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 covereed

Shares; UK; Volatility

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