The Slow Road to Recovery

As markets bounce around seeking stabilisation, at a time when European countries and individual US states gradually start to reopen, UK investors can now start to survey the wreckage.
The US unemployment picture signals some of the fallout. It’s plain to see that President Trump’s hopes for a tight job market have vanished. What was once a cornerstone of his re-election campaign is now looking more like an albatross. The fact that the pain has been felt broadly across the economy is a major concern.
The global financial crisis of more than a decade ago devasted many parts of the economy, with the housing market and financial sector particularly feeling the brunt of the downturn. But as painful as that crisis was, it was not all-encompassing; planes still flew, shops still managed to remain open, and everyone was free to eat and drink as they pleased. 2020 has proven to be a hugely different animal. Very few businesses have been left untouched; businesses remained closed, auto production virtually came to a halt, and reservations at airlines, hotels and restaurants disappeared.
To get a truer sense of how things have played out, it’s worth looking at both the headline numbers and what lies beneath them. An incredible 49.5m applications for jobless benefits were filed during the first 13 full weeks of the pandemic. The unemployment rate hit a record 14.7% level.

But data from the Census Bureau has given the market a clearer sense of where the pain was most felt. It turns out that bars and restaurants did not take the biggest hit from the coronavirus pandemic. It was clothing stores that suffered the biggest revenue losses over the past three months, with sales falling by over 60%.
By contrast, sales at restaurants and bars were down “only” 40%. Many of them have been surviving on take-out or delivery. This was not something that could be replicated by most clothing stores. And when you can’t go to work, and with little need for party frocks in a lockdown environment, the need for new garments in general diminished. And for those desperate to shop, it proved much easier to just order online. So firms that suffered most were those most poorly prepared for the advances in online retail.
Venues and locations in which customers are expected to spend time and linger are likely to have the toughest time experiencing a complete recovery. Lockdown hasn’t been kind to them as consumers have found alternatives. Or people have simply managed without them.
Not only does that mean challenges for restaurants and bars, but also settings such as bookstores and shops selling homeware.

How COVID-19 Has Hit Retail Stores

Despite the destruction, investors have found reasons for hope. Retail sales rose a record 17.7% in May, the US regained 2.7m jobs and the unemployment rate unexpectedly declined. Even the mass protests taking place across the US did little to slow the momentum.
This sharp deterioration and rebound in the economy have been mirrored by the stock market. The Dow Jones Industrial Average has recouped most of its losses, while the Nasdaq recently set a new all-time high.
Such market volatility provides ample ammunition for those that are critical of investors that gauge the performance of an index simply by measuring annual returns. If the year ended tomorrow, and an investor in the far-flung future simply looked back at the performance data for the year, the numbers would provide little insight into the white-knuckle ride endured.
The numbers would also provide no understanding of the structural shift that COVID-19 has brought about. Even if the markets do stabilise, and UK investors are able to generate decent returns in the near term, we should all accept that the world has changed.
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