This year (and we are not even ½ way through) has been unprecedented in so many ways. The Coronavirus, global economic shutdowns, social unrest around the world, the continued unbelievable actions from the US president etc.. The stock market has also responded in similar unprecedented ways.
2020 started out fairly positive with thoughts it would be a good year for stocks, although not as strong as 2019. The US had strong employment, good banking systems etc. Then as the COVID 19 virus impacted North America and we shut down US stocks dropped 35% in the short period from February 19 to March 23 which was a very fast downturn.
Since then we have also seen an unprecedented rally. The past 50 days have been the strongest US market rally ever, yes ever! The S&P500 is up over 36% since the March lows and is almost positive for the year.
At June 5, here is how the markets are:
|S&P/TSX (Canadian stocks)||
|S&P 500 (US stocks)||
|FTSE TMX Canada Universe Bond||
Source: TD Asset Management
Everyone has different opinions about why the fast recovery but the general consensus is that the speed and level that governments around the world responded with fiscal and monetary stimulus made a big difference. As an example, the US government increased the money supply by 23% year over year and the money has to find a home.
As well, stock markets don’t like uncertainty and are forward-looking. Right now they see the economic data bottoming, coming out better than expected and there is optimism for the future. Some vaccine information has looked positive which is also helping.
How do you manage your investments now?
Mostly the same as always. By having diversification in different economies and sectors. No one knows which investments will do well – we can make lots of predictions but no one knows for sure. This year was impossible to predict.
Here is a chart that shows the difference between the top and worst performing sectors from 2016 to 2019. You can see the difference is large and there is no recognizable pattern, so by investing in diversified portfolios we would do better than ‘betting’ on one type of investment.
We like picking companies that are growing their dividends, don’t have a lot of debt, have a competitive advantage. And will do well in the economic recovery.
If you have any questions let me know.
I’m happy to help answer.