Market Insights: Market Commentary
Milestone Wealth Management Ltd. - May 22, 2020
Market developments North American markets moved higher this week, propelled by U.S. Federal Reserve (“the Fed”) Chairman Jerome Powell’s comments that the Fed was “not out of ammunition by a long shot” and not to bet against the U.S. economy in the
Market developments
- North American markets moved higher this week, propelled by U.S. Federal Reserve (“the Fed”) Chairman Jerome Powell’s comments that the Fed was “not out of ammunition by a long shot” and not to bet against the U.S. economy in the medium or long run. Market optimism was also buoyed by positive results from Moderna’s COVID-19 vaccine phase 1 clinical trial.
- The Canadian government announced expanded eligibility for emergency business loans to include businesses that have filed either a 2018 or 2019 tax return and have expenses between $40,000 and $1.5 million per year.
- Canada’s consumer price index was down 0.2% year-over-year, the first such decline since September 2009.
- The U.S. Census Bureau announced that housing starts in April were 29.7% below the April 2019 rate, a negative but expected sign for the economy. Weekly jobless claims were 2.438 million, bringing the cumulative nine-week tally to 38.6 million.
- The price of U.S. oil reached two-month highs as lockdown restrictions eased even further in much of the world and supply continued to decrease. The price of WTI crude was trading around $33 on Friday, with the price of Western Canadian Select trading around $23. Both of these prices are still historically low, but much higher than where they were trading a short time ago.
The markets have continued to rebound in the face of a great deal of uncertainty related to both the progress of the pandemic and the prospects for an economic recovery, further demonstrating the risk of over-reacting based on short-term market movements.
Much of this week’s optimism appears to have been fostered by the potential for both a vaccine and additional government stimulus. Whether reality will live up to this potential on either front has yet to be seen, which is why your investment plan does not depend on it.
In light of the news that continues to come out, including continued re-openings and poor economic data, the markets have a plethora of both positive and negative indicators to choose from. As we’ve seen of late, they may alternate their focus from week to week, even when the news does not appear to be relevant. This is why our advice continues to be to stay informed, but to stick with your long-term plan. This allows you to remain unaffected by the market’s week-to-week mood.
We wanted to share some interesting data from the astute Ben Carlson of A Wealth of Common Sense blog, that further advocates staying the course. We have been through some incredible volatility of late, with March being one of the worst months on record for equity markets, while April was one of the strongest ever. In fact, if we remove the pre-1940 depression era from the data, March (-12.4%, total return basis) was the fifth worst month for the S&P 500 while April (+12.9%, total return basis) was the third best. The following charts group the best and worst months since 1940 (those with more than a 10% move) and show you the forward returns after those months. In both cases, we can see that forward returns have been extremely strong and far above historical average. We can only hope that since we have had not just one of the worst, but also one of the best months in history, back-to-back, that this bodes well for forward returns again.
