Over the last 20 years, I have lived through many market events, and each one has been unique and has felt unsettling, with the last major shockwave being the 2008 Great Financial Crisis. The current Covid19 pandemic is also very unique in that the financial markets were shocked and reacted initially to a health event rather than to an economic event.
It seems that Economics 101 has been thrown out the window. Normal economies function on basic laws of supply and demand, that being the premise of people buying goods to satisfy their wants and needs. It is currently very difficult to gauge the economic implications of Covid19, since supply and demand curves have been temporarily altered. If we then consider record unemployment, poor corporate earnings, and oil sector shock, it makes me wonder of the economic fundamentals in the near future. On a positive note, governments around the world are injecting monetary and fiscal stimulus into economies at levels never before seen. Looking back into history, there is no template which compares to the current scenario, and analysts and economists alike have differing viewpoints as to our near term outcome.
Every day, I am provided with new research, analysis and statistics, and we all know what they say about statistics… The conflicting research from reputable sources is generally in two camps. Some are saying that we are in a V or U-shaped recovery and others are saying that the recovery will be a W, and that there will be another downturn in the market. Both sides have valid arguments with data to support their points so the question remains, “Who is correct?”
Risk and Reward
Everyone understands that for a certain level of risk, you should expect a certain reward. Every year, there are many smaller corrections that move the market up and down, and every 10 years it seems there is a major market event. It is impossible to time the market and it is more important that your risk tolerance be aligned with your portfolio. If you feel unsure about your current risk levels, please let me know and we can review this together.