Equity markets were slightly higher this month but remain in a consolidative phase. The restless rotation among sectors continued as investors vacillated between optimism and pessimism over the pandemic situation and its impact on the global economy.
Equity markets started the month strong as economies around the world started to re-open. However, as COVID-19 cases in the U.S. started to rise, volatility in the markets also spiked.
Equity markets were choppy and uncertain throughout the month but trended slightly higher. While there is no shortage of bears, pessimists and doomsday prophets, optimism is gaining ground as countries around the world start re-opening their economies. Encouraging news on the vaccine front also provided much needed boosts.
Equity markets somewhat recovered in April from the extreme selling pressure last month. One thing to note is that the indices can be misleading in regards to the extent of the rebound. A large portion of the gains in indices have come from “pandemic stocks,” i.e. sectors and companies which benefit from the crisis.
During periods of extreme turmoil in the financial markets, there is always fear and worry over investment losses in the midst of downturns. While that is understandable, we investors can assuage these emotions by reminding ourselves that we are investing for a time horizon that is longer than just a few months, a year, or even two.
As part of our ongoing service at Aloni & Goh Portfolio Managers, we’d like to take this time to update you in response to the COVID-19 pandemic and volatility in the stock markets.
Equity markets made new highs in February after shrugging off initial concerns about COVID-19. However, as outbreaks in South Korea, Italy and Iran occurred, the markets sold off sharply. This risk-off process is still ongoing and will likely result in volatility over the next few weeks as the world watches how the pandemic develops.
Equities extended their gains for most of January, leading to overbought conditions. The coronavirus situation is providing an excuse for the bull market to cool off a little. At the moment, it is very unclear as to how serious the situation is and to what extent it will affect the global economy. We are inclined to think that this outbreak will be contained in due course, as with previous outbreaks, without serious damage to the equity markets.
The resolution of the preliminary U.S.-China trade deal provided the boost the U.S. equity market needed to confirm the breakout to new highs and embark on a new intermediate term uptrend. The Canadian market, however, is showing signs of sluggishness despite making new highs.
The TSX just managed to nudge into new all-time highs, but seems to be struggling in the bid to establish a new intermediate uptrend. We are optimistic that it will eventually find some momentum over the next week or so, during this seasonally strong period in the stock markets.
