“There are decades when nothing happens. And then there are weeks when decades happen”, quote unknown. That sums up the market volatility since the beginning of this pandemic. After the 2001 and 2008 downturn, a decade has gone by with not much excitement in the markets other than to see steady growth. That is until we hit this unprecedented global pandemic.
The current market condition is unique in that for the first time in our history, we are facing an issue affecting everyone globally. The issues in 2001 and 2008 were localized even though the impacts were felt worldwide. And the market recovery in these two instances took between 14 to 23 months.
Why has the market bounced back so rapidly as I am writing this on May 19th, 2020? Investors, in general, were bullish about the market over the past few weeks as the market made up for more than 50% of the initial Covid-19 induced market crash. The consensus is that many are betting that a vaccine will come through shortly and we will quickly get back to a strong 2021. In addition, governments were quick at providing a stimulus package for individuals and corporations to weather that storm. The belief in a vaccine and the confidence in the ability of governments to provide financial support are the two driving forces explaining the market resurgence over the past few weeks.
The above graph illustrates the US market movement over the past few months up to last week. The Toronto Stock Exchange, as well as any major international index, exhibited the same pattern. What's next for the markets? A number of prominent market experts warned us that the risk of another market downturn is more likely to occur if it takes longer to find a vaccine and/or governments cannot further provide a stimulus package. On a recent poll from my Alma Mater, 26% believed that the market will continue to move up, and 60% believed that we will have a second significant downturn before we recover. It's anyone's bet.
So what can we do in the meantime? My recommendation is that you stick to your financial plan to achieve your long term goals and maintain your investment strategy based on an asset allocation that you are and were comfortable with in the first place. It's one of the truths of investing to maintain an asset allocation which is in line with your risk profile. Your financial planner can show you why this works and how you can implement this strategy.