This was an interesting year to be an investor. On 20 February, the composite index S & P / TSX reached a peak of historical fencing 17 944,06. A half week later, as it became clear that the new coronavirus was not a concern isolated, the massive sale was in progress. At the end of march, more than a third of the value of the main stock market index in Canada had disappeared.
Since then, however, the market rebounded. At the close of trade on Tuesday, almost two-thirds of the losses of the first days of the pandemic had been recovered. In the United States, the recovery in the Dow Jones Industrial Average has been even more important.
All of this can raise an obvious question for the amateur investors: why is that happening?
Why a plunge in stock precipitated by the emergence of COVID-19 has a reverse-t-it so that the virus is still an active concern? Why, in a week where the head of the world health Organization said this week that “the pandemic continues to accelerate”, the markets are still rising? And why the stock exchange in the United States, where the number of new diagnoses of COVID-19 has reached a two-month peak, gets it more rapidly than that of Canada, where the situation viral improves?
CTVNews.ca has asked Pattie Lovett-Reid, commentator-financial-in-chief of CTV News, to weigh in on these topics and others that may be of interest to the amateur investors who struggle to understand the link between the pandemic and the market.
The following interview has been edited slightly for clarity.
Why the stock market does it as sunk at the beginning of the pandemic?
PLR:There was just a fear full of the unknown. In the past, we have experienced economic downturns – but we’ve never had a complete shutdown, where the people could not do anything. The money may be arrested in the past, but people have not. It was completely new. This has shaken the foundations of many. The markets are very forward-thinking and future-oriented, and we could not see where this was going.
This explains also why we see the market recover now, even if the coronavirus is still a problem?
PLR: The markets do not care about a pandemic. Unfortunately, they do not care about social injustice. They do not care necessarily if they are personally in disagreement with the policy of the government. Investors care about making money.
Someone who tries to time the market is someone who is trying to take advantage now of the re-opening of the economies, of the people who work at home. Think of the economy of the home. Take a look at the technology stocks that defy the odds – they have reached record highs, they have strong liquidity on their books. If you think about it, we had a strong reliance on technology – so some of the winners at the beginning of this pandemic, there is clearly a sense if you are an investor.
That said, why the us markets bouncing back a little faster or a little higher than the canadian markets at this point?
PLR: This goes back to some of the sectors that are doing better. We do not have a presence technology as strong as the u.s. markets. There has certainly been a… of leading indicators, which, hopefully, will begin to change – the profits of firms, this kind of things.
You think about the energy sector, where oil has literally cratéré and that we are seeing a rebound – it oscillates always around $ 40. But our concentration on the TSX, it continues to be as well financial than energy, and these are two of the hardest-hit sectors.
What is the message for anyone who cares about his finances during the pandemic? It almost sounds like you are saying that the pandemic does not matter.
PLR: Yes, I think so. The markets will be very volatile. The markets do not like uncertainty, that’s for sure, and we certainly have uncertainty. I think that as an investor, you must consider your personal tolerance level for risk and your time horizon, as well as the quality of your portfolio.
I get a lot of questions of older people who say: “Do I have to switch entirely to the money? And my answer to that is no, not necessarily. What I think you should look at is “do you Have enough money to cover your living expenses? You may be in the sixty, but you can always have a long-term horizon, you may therefore want to be exposed to the market to follow the taxes and inflation.
If you are someone who does can literally not sleep at night – and there are people who have contacted me in this situation – so they were probably more risks than they should have, or more exposure in some areas that their portfolio does not justify it, and they felt that they needed to sell – and that’s OK too, because the sleep factor is important.
It depends on the individual. I am on the markets, I’m talking about markets, and I’m worried about the markets – and so what I’m going to do, my husband and me, we sit and watch our composition. We are reasonable about our expectations in terms of return, and we regularly discuss the need to adjust. I can tell you for now that it is stable as. I think that boredom is beautiful. I want a portfolio of boring, which continues to give me the type of performance I need over time. But each person must evaluate this by itself
Y a-t-there anything else that you think that the amateur investors should know now?
PLR: Don’t let your emotions dictate your decisions. There are so new – and I contribute to these titles – but this does not mean that you have to react at all.
You have to sort of look at your own evaluation, do not follow the mentality of the herd, and to know that we went there already, in these types of situations where the markets have been extremely volatile. It never does good in the moment, never.