06 Apr Capital 19 Catch-Up
Stay focused on the long term and use dips to buy stocks
Other than the two sessions straddling the end of the month and the end of the quarter, each session last week saw a change in market direction. Something that has become the norm over the last few weeks. As an investor, it’s a hard thing to get your head around. When the market is swinging around as wildly as it is difficult to know what to do.
Having your mindset focussed on the long term is important in these moments. Getting stressed about markets making massive moves each day is pointless. We all know that it won’t last forever.
At the current point in time, there are a few unknowns are hanging over the market. The main two being covid19 and oil production. As soon as there is some clarity on each markets will settle down again.
We’ve all seen the graphs on the spreading virus. We’ve all seen countries that have had it the longest flatten their curves eventually. Cross fingers it has already happened here, and soon enough it will happen in the US as well. It’s only a matter of time.
As for the oil standoff, there’s talk it may end as soon as this week. The Saudis and Russia are already feeling the pinch thanks to a worse than expected pandemic and they will be ready to make a deal on cutting production as soon as possible. The US oil industry is being decimated by the oil glut and they will be gladly appreciative. Please check out today’s stock report on Chevron for a closer look at the implications of the oil situation.
As expected, the quarter was a tough one for investors. The Dow was down 23.2% which was its worst first quarter ever, and its worst quarter overall since 1987. The S&P500 was down 20% which was its worst since 2008. Both also experienced their worst March since 2008 with losses of 13.7% for the Dow and 12.5% for the S&P500. And all of this despite a near 20% rally towards the end of the month.
The first day of the quarter saw a 4.41% pullback on the S&P500. It was the worst start to a quarter ever on the benchmark index. To put that in perspective, the S&P500 has been around since 1957. It pulled back half of these losses the very next day of course, despite weekly job losses coming in at over 6 million.
The nonfarm payrolls saw the US lose 701,000 jobs in March and unemployment rise to 4.4%. We all know the numbers for April will be much worse as the lockdown continues, but this is known by investors and baked into the numbers. Market success will be all about the virus numbers and how long the lockdown will last for.
President Trump initially stated he wanted markets to be opened by Easter but thankfully pushed this out to the end of April. Now, the US has Buckley’s of ending this by the end of April. They’ll be in lockdown for a few months to come yet. The important thing is getting that curve heading in the right direction. Then we’ll slowly see the economy opening up again.
What the last month has really reiterated to me is the importance of having a rounded portfolio. Diversification is the key in periods such as this. You want to be holding stocks in as many different segments as you can. So for every oil company or restaurant stock you own which has most likely been battered, you’ll have a Zoom (ZOOM), or an Nvidia (NVDA), or Amazon (AMZN) which are positive for the year to date.
Take a look at Walmart (WMT) for example. It’s the biggest retailer worldwide and a blue-chip stock that should be in any US portfolio. Despite being in the heavily affected retail sector it’s share price is actually up for 2020. Over the weekend it announced that sales had jumped by 20% in March so I expect it has another good week coming up as well. It’s a testament to the online presence that they have managed to build and a strategy that we have discussed more than once previously in the Catch-Up.
If you didn’t have a diverse portfolio heading into the current drama, and you’re down as much or even more than the current market you can take this opportunity to reposition yourself for the run higher. If you’re not sure how to do it yourself contact your advisor who can handle it all for you.
In the week ahead we’ll all be focused on macro issues again. OPEC partners are expected to meet via a virtual meeting on Wednesday and Thursday where President Trump will be hoping they cut oil production by 15 million barrels of crude per day. There’s not much chance of this happening, but hopefully, a more realistic cut of 5-10 is in the pipeline – or not in the pipeline as it were.
Weekly jobless claims will also be closely watched. The last two weeks have both been records, 3.28 million two weeks ago and another 6.6 million last Thursday. Another 6 million will be seen as a win (crazy, I know), but an unexpected higher number may see the market move lower.
The big news will be the new coronvirus cases and that sickening death toll that the US is experiencing at the moment. It would be brilliant for both markets and society as a whole to see those numbers coming down. Let’s cross our fingers.
Keep inside and stay safe everybody!