Market Insights: Market Commentary
Milestone Wealth Management Ltd - Apr 24, 2020
What were the key developments this week? Canadian and U.S. equity markets continued to fluctuate as investors weighed the possibilities of slowly easing lockdown restrictions and a quick economic recovery against the fallout of plummeting oil prices
What were the key developments this week?
Canadian and U.S. equity markets continued to fluctuate as investors weighed the possibilities of slowly easing lockdown restrictions and a quick economic recovery against the fallout of plummeting oil prices.
- On April 20, U.S oil prices fell below zero for the first time in history, ending the day at -$37.63. This is an interesting news item, but in reality, that price was only for the May oil futures contract which was expiring this week. The longer-term oil price for WTI is still around $17.00 (still very low, but definitely not negative). With so much of the economy paused, the absence of demand has left a lack of storage facilities for soon-to-be-delivered oil. As expected, last week’s OPEC production cut was not enough to rectify this.
- Canada’s annual inflation rate fell to a near five-year low in March as gasoline prices plunged.
- The U.S. announced weekly jobless claims of 4.427 million, bringing total job losses to over 26 million in the last five weeks, wiping out all gains since the Great Recession.
- The U.S. House of Representatives approved a $484 billion coronavirus relief bill to fund small businesses and hospitals; this brought the country’s total crisis response funds to almost $3 trillion.
- The number of confirmed COVID-19 cases worldwide surpassed 2.6 million. Europe continued to slowly loosenrestrictions in certain regions, as did some southern U.S. states.
With respect to the markets, even with the recent rally there seems to be a definite bearish tilt to investor sentiment. In the table below, we show the prior ten times that bearish sentiment has been at least 50% and twice the level of bullish sentiment without having done so in the prior six months. Looking forward, over the next week the S&P 500 has been higher half the time with an average decline of 0.28%. But in the months to year after, the S&P 500 has tended to outperform. Six months and one year later, the S&P 500 has been higher 90% of the time with median gains of 5.21% and 14.99%. respectively.
Source: Bespoke Investment Group
Should any of this change my views on my investments?
The market’s recent turbulence has been difficult emotionally for many investors, and we should be proud that we have followed our long-term process together. Going forward, we will continue to see numbers like those above; some may be positive for the economy and others negative, but it is important to see them as data that are constantly changing, rather than as indicators to overhaul your portfolio. To emphasize the benefits of staying invested in both good times and bad, we thought we would share the chart below. Regardless of what the market does in the days, weeks and months ahead, history has shown that staying the course has reaped benefits over the long run. Although we have and are continuing to make tactical adjustments to portfolio asset allocations and individual securities within our mandates to take advance of volatility, our advice is for the core portion of a long-term portfolio to stay invested as developments such as this week’s drop in oil prices play out.
