The markets were extremely volatile during the week of March 23-27, but this time in a positive direction. From its lows on Monday to its highs on Thursday, the S&P 500 rallied just under 20%, and other indexes had similar results. This commentary, from the team at Cumberland Private Wealth, explains some of the reasons why.
First and foremost, we have had more massive monetary (central bank action) and fiscal (government spending) stimulus announcements around the world this week, and the equity market was looking very oversold. In addition, don’t forget that we are simultaneously heading into month end and quarter end.
Since pension funds typically have a consistent asset mix, and since equities have declined so much from their highs, pension funds will need to rebalance their portfolios, which means they will be buying equities. As such, trading desks around the world will see significant buying of equities from their pension fund clients over the next few days. Some of the market gains since Tuesday will be in anticipation of this happening, and that said, it is incremental good news for equity investors.
Earlier this week, Peter Oppenheimer, Chief Global Equity strategist at Goldman Sachs, said there are four “components” to the market stabilizing from here:
- A sign that policy intervention is sufficient to prevent severe second and third round economic shocks.
- A sign that the coronavirus infection rate is reaching a peak.
- A sign that the economic downturn may be slowing.
- Cheap valuations.
He wrote: “…in reality, we believe it will be a combination of these, and in some cases, there are already signs that these are in place.”, a comment with which we tend to agree.
We can remind ourselves that financial markets, as ever, are forward looking. When investors sense that things are changing for the better, at the margin, the markets will respond very quickly and often sharply.
Former US Federal Reserve Chair Ben Bernanke was interviewed on CNBC this week. It was a 14-minute interview, and given his expertise in matters relating to the Great Depression, and the fact that he also helped steer the US through the Global Financial Crisis, his perspective was helpful and reassuring. He thinks the Fed has been doing a great job amidst this crisis, and thinks the ensuing recession will likely be short. You can watch the interview here.
So, to round up our briefing, and in consideration of the currently volatile and challenging environment, we continue to monitor and assess the developments day to day, hour to hour, with caution in the near term, and to make changes as needed within the confines of our investment mandates.
That notwithstanding, we would observe that there are now great companies available for longer term investors, which is in stark contrast to the landscape in later 2019 and early 2020. Over the medium to long term, investors will ultimately be rewarded for navigating through well and recognizing high quality assets at very attractive prices.
The best way to deal with uncertain times is to have a financial plan. Now is the ideal time to create a plan, or if you already have one, to review it. Contact an Investment Planning Advisor* at CDSPI to help you through these challenging times.
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* Investment planning advice is provided by licensed advisors at CDSPI Advisory Services Inc. Restrictions to advisory services may apply in certain jurisdictions.
The information contained in this article is of a general nature only and should not be considered as personal investment or financial advice. All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions.