Despite ongoing lockdowns globally, April represented the best month for the TSX since 2009 and the S&P 500 since 1987. It is encouraging to see improvements in the markets; however, it is important to expect volatility to persist and to maintain a long-term perspective in order to keep your eye on your goals and tune out the anxiety caused by the daily investment news cycle.
*Equity Indices - FTSE Global Indices in CAD, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index based on end-of-day data for the Total Return Index as at market close April 30, 2020.
Fundamentals drive long-term market performance, and there remains significant uncertainty surrounding the direction of short-term fundamentals. So why have the markets advanced over April?
The advancement can largely be explained by an improvement in liquidity. Policymakers have taken extreme expansionary measures to ensure liquidity is present in the financial system and to support workers who have been temporarily put out of work during this period. In addition,, there have been marked improvements in investor sentiment, which improved as signs that the new infections curve is being flattened started showing over the month, and governments started to discuss plans to gradually re-open their economies. These forces have led to an improvement in index performance and lower volatility relative to March.
May marks a very interesting month as we will observe different national, state, and local approaches to a gradual re-opening of the global economy. The success of these efforts will depend on local health conditions, the trend in new infections, and the behavioural patterns of consumers and businesses as they re-orient themselves to function during an ongoing pandemic. We will likely see continued volatility as the world adjusts to this new normal and until there are clear signs of a vaccine in place.
Looking a little bit further forward the November presidential election could be another source of volatility as markets will try and price in the likelihood of any potential changes and the associated impact it would have on the US economy.
During times of economic uncertainty, fear can be a dominate emotion felt by investors. It is important to remember to stick to the basics. During these unprecedented times we are hearing reminders on a daily basis to wash our hands, stay home, and maintain physical distancing outside of the home as important practices to combat the virus.
As an investor, remind yourself that you hold a diversified portfolio that is optimized to your particular goal, portfolios should be rebalanced to take advantage of volatility, and contributing regularly to an account (for example at the same frequency as you receive income) is an important practice to combat the fear you are feeling in the moment, as these strategies have shown to benefit investors in the long-term.
As always, follow a disciplined approach and stay the course. In the meantime, enjoy your time at home with your families and we hope everyone is staying safe!