Markets bounce back after massive government intervention
Markets bounce back after massive government intervention
After a horrendous March, global equity markets roared back with all the major indices we track recording gains. Our own TSX Venture was last month’s top performer with a gain of over 20%. Year to date, only the tech heavy Nasdaq remains in positive territory with a +3.1% gain to April 30th.
Markets were driven higher due to a number of positive factors including: the massive monetary and fiscal measures taken by the world’s Central Banks and governments, especially the US Fed; the growing evidence that COVID-19 cases were finally heading lower; more and more countries slowly reopening their economies; corporate and government announcements that a COVID-19 vaccine could be ready as early as January 2021; a large OPEC+ oil production cut to curb the mounting oversupply caused by plunging drop in demand; access to rock bottom interest rates.
The S&P 500 recorded a gain of +12.7%, Nasdaq +15.2% and the S&P TSX Composite rose +10.5%. Some of the best performing sectors in April were among the hardest hit in March including energy, discretionary and small caps. While the energy sector rebounded 28% in April, helped by the OPEC cuts, year to date it remains the worst performer. Technology companies continued to lead as their products remain in good demand; more stay at home workers use technology for communication, ecommerce, teleconferencing, internet, entertainment.
The Material sector, i.e. gold, was the best performer in April and the second-best year to date. Rising gold prices, record low interest rates, heightened global uncertainty and growing worries that soaring government debt may push inflation higher, all helped push gold stocks higher.
The more defensive sectors such as real estate, telecom, utilities and financials substantially underperformed in April and year to date. While the more defensive sectors tend to hold up best during a recession, this year they have been amongst the worst performers. Given the unprecedented economic shutdown caused by the virus, we have millions of people at home and non-essential business closed. Investors are concerned that people and companies won’t be able to pay their rent, cell phone bills, buy a house or take out a mortgage or loan. For the real estate sector, investors are concerned about the rising number of defaults and whether technology will significantly impact corporate real estate demand.
We see equity markets remaining volatile for some time. We see the global economy gradually recovering over the summer and more into Q3 and Q4. We don’t expect to return to normal until we all have access to the vaccine.
With so much more bad economic data and earnings reports to come out over the next few weeks, we see markets retracing some of their April gains over the short term. We do not expect a retest of recent March lows because of the positive and mitigating impact from the massive monetary and fiscal relief programs, evidence that new virus cases are slowing, the gradual reopening of the global economy, record low rates, stabilizing oil prices, and most importantly wider availability of testing, treatments and sooner than expected vaccine.
It is important to note that our positive outlook for equities is based on one extremely important assumption: that as economies around the world reopen in the coming weeks and months, we do not see a significant resurgence in virus cases.
GLOBAL INDICES % MTD % YTD
S&P/TSX COMPOSITE INDEX 10.5 (13.4)
S&P/TSX VENTURE COMPOSITE INDEX 20.8 (18.3)
S&P 500 COMPOSITE 12.7 (9.9)
DOW JONES INDUSTRIALS 11.1 (14.7)
NASDAQ 100 15.2 3.1
RUSSELL 2000 13.7 (21.5)
EURO STOXX 50 5.1 (21.8)
FTSE 100 4.0 (21.8)
DAX 30 PERFORMANCE (XETRA) 9.3 (18.0)
NIKKEI 225 STOCK AVERAGE 6.8 (14.6)
HANG SENG 4.4 (12.6)
