PERSPECTIVE3-5 min to read

Johanna Kyrklund: Are opportunities beginning to emerge?

After the dramatic market falls of the last few weeks, valuations are looking more appealing. But the risk of a prolonged recession means investors should remain cautious.



Johanna Kyrklund
Group CIO and Co-Head of Investment

Last week I said valuations are still not cheap enough to warrant taking more risk. After the large falls we’ve seen this week, is this starting to change?

Part of the reason why the market tumble has been so breath-taking is because shares began the coronavirus episode at such expensive levels, particularly in the US.

Such high valuations were precarious and vulnerable to a change in investor sentiment. The result is that since its peak on 19 February, the US S&P500 index has fallen 26.6%, as of the end of the day yesterday (12 March).

So where does that leave valuations now? According to our statistical models, shares are now priced in expectation of a technical recession. This is when an economy shrinks for two consecutive quarters.

Whether a more prolonged recession lies ahead remains to be seen. Our Chief Economist Keith Wade said in an article earlier today that the coronavirus crisis has made him re-assess his outlook for the world economy.

The potential for a longer recession is real, Keith thinks: “monetary and fiscal tools are weak in the face of the virus and until the outbreak is under control the tail risk of a prolonged slump remains high.”

From an investment perspective, I expect the market’s trajectory will go from being a straight line downwards to intermittently heading both up and down for the time being. This is as investors weigh up on one hand the prospect of more lockdowns and a more protracted economic downturn caused by Covid-19, versus the impact of emergency government and central bank  intervention.

At current levels markets have now priced a technical recession with a fairly flat outcome for corporate earnings for the year. If we have a longer term economic slump, we would have to assume earnings decline. This would suggest another 10% downside to stock markets from here. This would probably be accompanied by a great deal of volatility as we have the opposing force of policy intervention which could cause short term bounces.

Considering these risks, I would urge caution. Valuations may be looking far more attractive than a few weeks ago, but this is a market for experienced swimmers only. The sea will remain stormy, but under the surface opportunities are beginning to emerge.

You can find more of our coronavirus insights here.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


Johanna Kyrklund
Group CIO and Co-Head of Investment


Market views

Please consider a fund's investment objectives, risks, charges and expenses carefully before investing. The Schroder mutual funds (the “Funds”) are distributed by The Hartford Funds, a member of FINRA. To obtain product risk and other information on any Schroders Fund, please click the following link. Read the prospectus carefully before investing. To obtain any further information call your financial advisor or call The Hartford Funds at 1-800-456-7526 for Individual Investors.  The Hartford Funds is not an affiliate of Schroders plc.

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.”

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security/sector/country.

Schroders Capital is the private markets investment division of Schroders plc. Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.