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.
Equity markets continued to show strength in the face of negative factors such as recession fears, slowing earnings growth, trade tensions, Brexit and political concerns. A sharp selloff early in the month, the third selling squall this year, was easily overcome and markets are near the highs again.
We are positioned nicely for a transition from a corrective phase to a new leg up and our Canadian portfolio values have reached all-time highs.
Volatility returned to the equity markets with U.S.-China trade tensions coming back to the forefront. Recession worries amid plunging bond yields also caused equities to sell off during August. While the selling squalls were large and dramatic, the market showed signs of resiliency with its ability to rebound.
