Broomer's Blog

From the monthly archives: April 2020

We are pleased to present below all posts archived in 'April 2020'. If you still can't find what you are looking for, try using the search box.

Why are companies cutting dividends?

Dividends are normally a reliable indicator of company health. Most of the time, dividends are paid, and are only cut in the direst of circumstances. Company shares frequently suffer very badly when this happens and so during most market crises dividends across the market are very rarely reduced. To put this into context, in 2008 they fell by about 10%, which by historical standards was an exceptional fall.

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Have markets got ahead of themselves?

We find ourselves in the midst of a striking rally in the S&P 500 which has retraced 27% since the market lows on the 23rd of March, regaining over half the losses since its peak in February. The FTSE 100 has been more pedestrian in comparison being only up 13% from its lowest point. The US government has been busy pulling together packages to help prop up businesses. Congress has released $2 trillion to help individuals and businesses directly affected by the virus and the Fed more recently has created a $2.2 trillion bundle of loans and liquidity support to help markets and businesses through these difficult times. We are now entering the first quarter earnings season, but most investors will be expecting widespread bad news which will largely be ignored by the market. One development that seems to be supporting the market at the moment are signs that the epidemic is being suppressed. We are perhaps passing the worst here in Europe while the US appears to be approaching the peak of this outbreak. Ho ...

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How is the economy going to bounceback?

Markets continue to be amazingly volatile with the S&P climbing 7% on Monday this week. In general, we do not expect to see market changes of that magnitude in a bull market; they are much more associated with bear markets and we are probably not out of the woods yet. In addition, we are facing a material collapse in GDP as large swathes of the economy are closed down. We are beginning to consider the extent of any bounce-back once these controls are lifted. It is perhaps easiest to put these considerations in the context of individual businesses. Take for example hairdressers. The longer people are confined to their homes, the more dishevelled they will start to look. Hairdressers have lost custom as their clients are prevented from going to salons but once the quarantine restrictions are lifted, people are likely to rush back, and hairdressers can expect to experience a surge in demand as a result. Nonetheless, the longer the lockdown remains in place, the more business hairdressers will miss out on. Th ...

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