What will the “new normal” look like for investors?

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The new normal. It’s a phrase we’ve heard a lot since the Covid pandemic began. Our way of life was turned upside down by lockdown restrictions. And now that we’re almost heading out the other side, we might be about to find out what 'new normal' actually means.

Back in March 2020, we all hoped lockdown would only be for a few months. But as it dragged on, the novelty of baking banana bread, working from home and video calls soon wore off. What at the time was dubbed “unprecedented” eventually became routine.

Here we are 15 months later. But with the impressive speed of the UK’s vaccination programme, we can now move forwards with cautious optimism – investors included. A return towards the old way of life and more regular investment conditions, but with many differences to before.

The so-called 'new normal.'

In the post-Covid landscape, there will be winners and losers

The final step of moving out of lockdown might have been pushed back a few weeks, but the majority of UK sectors and businesses have been able to reopen in some capacity and the remaining areas are not far behind.

There will be some apprehension whether industries that have been closed for so long can recover. But the early experiences of businesses who reopened in steps two and three of lockdown easing offers encouragement.

Pubs and restaurants have got steadily busier since reopening – the bank holiday weekend at the end of May proved an extremely popular time to go out. People have returned in decent numbers to using gyms and going to the cinema. Other industries devastated by Covid – such as travel – seem a little more optimistic.

But the new normal is a further threat to the already hard-hit high street. In April figures released by the Centre for Retail Research show almost 190,000 jobs lost in retail since the first lockdown. It follows the closure of 17,500 chain stores in 2020.

Technology got us through the pandemic. But for many businesses who rely on footfall (people visiting in person), lockdown has been a blow they can’t recover from. Footfall on the high street has risen since restrictions eased , yet the long-term transition to online retail has only increased in speed during the pandemic.

Yet there is a big rise in consumer spending on the cards

If history repeats itself, the next few years may be a lot of fun. After the last global pandemic, a century ago, the shackles were largely taken off as people revelled in the return of freedoms. It was a time known as the Roaring 20s.

There is some expectation that the same thing will happen again. Nicholas Christakis, professor of sociology and medicine at Yale University, says the period between now and 2023 will be “a bit of a party."

What may support this optimistic theory is the amount of money stashed away by many people, waiting to be spent. Figures from the Office for Budget Responsibility suggest that, by the summer, UK adults will have collectively saved £180 billion. Largely because they spent much less during lockdown. After more than a year of pent up frustration, a lavish treat or two is a just reward.

This potential consumer spending boom is great news for the reopened economy. As we reported in your last Skipton Insight, the Bank of England’s UK outlook for the rest of 2021 is very positive.

Inequality gap is set to widen

Whilst it is good news many people saved a lot of money during lockdown, for others it has been a time of financial difficulty. If society was already imbalanced, in the new normal the gap is likely to grow even wider.

This is the same on a global scale. Whilst in the UK the majority of the adult population have had at least one vaccine jab, it’s far from the case in most countries.

“There remains a shocking imbalance in the global distribution of vaccines,” WHO Director General Tedros Adhanom Ghebreyesus said in April. Because of the health risks Covid will continue to pose to largely unvaccinated populations, it means some global economies will have to operate at a lower capacity than others over the next few years.

For global investors, this ever-changing backdrop will throw up different considerations. Especially given the fast-changing events of Covid that will likely see lockdowns maintained or re-introduced.

The new normal could include a considerable wealth gap – with some parts of the world left even further behind. And that will have an impact on global markets.

Investing in the new normal

The new normal is going to look different from before. There will be some things new that never go away again, some things that return to how they were, and some things that will sadly disappear. But as many investment experts will tell you, stock markets have always reflected the times.

Take the FTSE 100. It is an index of the UK’s biggest 100 companies, and those 100 companies inevitably change over time. Since the FTSE 100 was first established in 1984, 382 different companies have appeared within it at some point. Only 30 companies remain in the FTSE 100 from 1984.

It is unfortunate if the new normal sees some businesses fall by the wayside, but that in itself is nothing new. It’s the old normal, in fact. And it’s why companies like Kodak and Blockbuster faded.

If you’re invested in a fund set up to track a particular index, such as the FTSE, the overall success of that market is what ultimately matters. And if you’re in an actively managed fund, with fund managers seeking suitable investment opportunities, you can be assured they will be studying company fundamentals closely. To keep making informed decisions over who will succeed in the new normal.

Mark Butterworth

With the end of the pandemic seemingly in sight – at least here in the UK – there are reasons for investor optimism. Some dark clouds persist but the storm has largely passed. The new normal is beginning to look clearer, and it’s one where the long-term potential to grow your money remains strong.

Mark Butterworth, Head of Financial Advice Planning and Research.

Important information

By investing with our advice, our aim is to grow your money by a greater extent than is available through cash savings accounts to help you achieve your goals. Although funds are not like bank and building society savings accounts. It does mean placing your capital at risk, as its value can fall as well as rise and you may get back less than you originally invest. Economic and market conditions of the past may not be repeated in the future.

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