Markets have been fascinating to watch in the last couple of months. After precipitous falls in March, it appears many market participants moved quickly to bet on a V shaped economic recovery, and as a result most markets have rallied back strongly to close to their highs. Since June, many markets have stabilised, as seen in the chart of the Australian Stock Market below.
The key outlier has been the technology stocks, many of whom are seen to be beneficiaries of the Corona Virus. These stocks are now are trading well above their highs as shown by the move in the US technology index the NASDAQ below.
Where to next?
It appears the market has moved through its initial fear into greed and is now trying to figure out the next phase. There are two opposing forces at work at the moment. Firstly, most economies have the dampening effect of rising unemployment and slower consumer spending, which is negatively impacting their outlook. Many governments struggling to deal with rising Corona cases whilst trying to open their economies and keep everything moving. However, at the same time we are seeing unprecedented low interest rates and large levels government support globally. There is great uncertainty and it is difficult to say which way things will go. Although generally speaking remember markets are forward looking and will bottom before the real economy does.
Until Corona case numbers peak or a vaccine arrives it appears that markets might be facing some challenges. I wouldn’t be surprised to see further weakness in markets should they get disappointed that the pace of the economic recovery has not matched the recent increase in stock prices.
What should you do?
There is nothing to worry about, markets will sort themselves out in the longer term. You need to remember markets go up more than they go down and that is what makes them good investments.
What is most important during times of uncertainty is that you stick to your fundamentals of investing:
- Have a diversified portfolio of many types of assets – cash, fixed interest, property and shares (both Australian and international). A mix of defensive assets and growth assets protects you when market conditions change.
- Make sure you have enough investment time-frame to ride out any pull-backs in markets. The ability to ride-out market down turns without panicking is the essential characteristic of a great investor and will ensure your portfolio benefits when markets eventually rise.
We will keep you informed as things progress.
Shelley Marsh and the team at Marsh Financial Advice
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. It does not represent and is not intended to be personal advice. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. We strongly suggest that you seek professional financial advice before acting.