The Sunday Times called it “the return of fear”. The FT’s editorial board, in its obituary for the 11 year bull market, described the coronavirus-related sell-off as “a perfect storm [that] wreaks havoc on global markets”. Both newspapers concluded that a global recession is “imminent”.  

It is an understatement to say that we are in the middle of an extremely important moment for economics and markets and the headlines referring to investor panic are certainly not wrong. Gloomy assessments from fund managers and the economic commentariat are pervasive, with very few pointing to any imminent chinks of light (understandably, since anyone brave enough to act on Donald Trump’s recommendation to “buy the dip” at the end of February would have been brutally pummelled for their trouble!). 

In such a volatile climate, attempting to make forecasts is fraught with peril but it is perhaps worth reflecting on what fund managers are not saying at the moment. Whilst some of our investment management clients agree with the prevailing view that, if we are not already in one, we will soon be in a recession, none of our investment management clients are predicting a depression. None, at the moment, have indicated that they think a recessionary phase would be particularly prolonged, in the same way as it was during the financial crisis. Whereas some express confidence in a quick and sharp “V-shaped recovery”, others talk in terms of a slower “U shape” – but the common denominator is a recovery in the short-to-medium term. The “L-shaped” scenario, where the global economy is stuck in a recession throughout the year, is conspicuous by its absence from our clients’ many notes on market moves, as it is from investor views appearing across the media. As Blackrock observed last week: “This is not 2008.”

When investors refer to “a recession”, they are usually doing so in the context of its definition as “two or more consecutive quarters of negative economic growth”. This could legitimately mean (as has often historically been the case) 6 months of economic shrinkage followed by a return to growth. Some commentators – particularly in periods of market turbulence – talk about “technical recessions” which, by point of contrast, might seem to imply that a normal “recession” (one not qualified as “technical”) is therefore a more serious or long term phenomenon than many investors who use the term mean it to be. The distinction between a “technical recession” and a “recession” seems a bit arbitrary (after all, we don’t tend to speak of The Titanic as having “technically sunk” or of Anne Boleyn as the victim of a “technical beheading”) but the distinction between a recession and a depression is not. Clients have, so far, not speculated that a depression – a sustained, long term downturn – is the likelier scenario.

Clearly, many companies are facing existential challenges and the worst trading conditions in their history. Insolvencies are inevitable. But, if investor consensus is for a recovery – be it V or U shaped and whether it materialises in the short or medium term – both private and public companies have an opportunity to position themselves strategically with their shareholders ahead of its arrival. Doing so is likely to involve communicating some aspects of their business on which they may not have traditionally focused in their corporate reporting. Strong balance sheets, management having prudently avoided directing “dry powder” towards overvalued acquisitions or share buy-backs, comprehensive and effective business continuity plans and specific measures which have successfully maximised business efficiencies and smoothed out operational disruption are likely to become even more important components of valuations in a recovery phase.

It is still anyone’s guess when this phase will arrive but, amid the panic, it isn’t all pessimism from investors. Speaking after the Fed’s most recent stimulus measures on Sunday night, the Chief Strategist of one client noted that “one positive perspective is that, with most of the developed markets having now made clear that they intend to introduce brutal closures and having prepared citizens for a steep and accelerated rise in coronavirus cases over the coming weeks, perhaps most of the bad news is now behind us; perhaps markets can start to repair, helped by Fed policy, and without working under the threat of more negative surprises from coronavirus.” Closer to home, the Head of UK Equities at another client said last week: “there is a high chance that [the OBR’s forecasts] will prove to have been excessively pessimistic as we look ahead to 2021 and 2022”.

Edelman is supporting businesses and organisations looking to better understand the COVID-19 pandemic and its public health implications; manage communications with employees and customers; and receive general guidance on strategies and policies for effective preparedness and response efforts. Please contact to discuss your needs.