Back to the new normal?
”Behind every stock there is a company, find out what it’s doing” (Peter Lynch)So as we enter our second month of lockdown in most parts of the world and as the Covid fight continues, the April bounce back was pretty exceptional for most markets, raw data being
MSCI World +10.8% -13.0%
S&P 500 +12.7% -9.9%
FTSE +4.1% -21.8%
Nikkei +5.7% -15.5%
SSE +4.0% -6.2%
MSCI EM +6.9% -13.0%
And the currency? Only major mover being in A$ getting some of its value back..performance of USD against the following being:
GBP -1.0% +5.3%
EUR +0.8% +2.3%
JPY -0.2% -1.7%
AUD -5.1% +8.7%
CNY -0.3% +1.3%
So what to make of all of this? Are we on our way to a V shaped economic recovery, or perhaps a more passive U shaped , as favoured by the majority of economists. Other alphabetical options discussed are a W shape where this current bounce will take us back to where we were only for further falls. Or the more extreme ideas out there, the overly optimistic J recovery and overly pessimistic L shape. Good news is the L shape theory has already been discounted given the gains during April.
And what gains they were. The S&P had its biggest single month gain since 1987 and its best April since 1938. The value in the stock market was always there and those who make money in the market would have seen, recognised this and bought.
That’s not to say that by the end of this month I think we’ll be back to normal, with those in the V shaped recovery camp celebrating victory. Today being Labour Day and we are staring at highest unemployment numbers since the Financial crisis, the US hitting 30 million. Whilst some parts of the world are getting back to the ‘new” normal, this pandemic is not over and there will be consequences for all economies to bear, albeit not to the extent the media would often lead you to believe.
The S&P now sits 474 points off its 2020 high and 675 points off its low this year.
Personally I think that we may see somewhere between a U and a W with some of the smart money that has been invested in the market recently coming out. But whatever shaped recovery it is, we will all the same see a recovery from these dreadful few months.
The recent situation has highlighted the importance of having your funds invested in the right areas. When you break down the S&P falls this year into sector, Technology and Healthcare, two of my favoured areas have actually only lost 0.16% and 2.39%, falls anyone who invests understands.
Drill down further and use the right managers who buy the right shares and you are making money. Amazon up from $1,898 to $2,474, Netflix up from $329 – $419 and Activision Blizzard up from $58 – $64, all whilst we apparently experience the worst financial crisis since the Great Depression. The reasons behind this do not take too much working out. People will be ordering more goods online through Amazon, Netflix will get more subscribers and more time will be spent playing Activision Blizzard’s video games – to repeat again the words of the great Peter Lynch when he says “Know what you own and know why you own it”.
So where you invest in these difficult times is even more important. As well as choosing the right sectors, choosing the correct geographical areas is also part of building a successful portfolio. Ironically Chinese markets are up in the last 12 months and there are plenty of other developed country stock markets such as Denmark and New Zealand where the 12 month return is favourable.
So whilst there were undoubtedly fewer ways to invest successfully and get a positive return over the last 12 months, there are ways. It doesn’t have to be that complicated either. Someone who had been marooned on a desert island for the last 12 months with his portfolio invested in a simple tracker of the Nasdaq, the world’s second biggest market would check their account today, see they are 14% up and probably wonder what all the fuss is about….that wouldn’t have happened in 1929 thats for sure!