We’re halfway through the month of April and as we all know, March was one of the worst months for equity markets since the 1987 stock market crash. Our local equity market was down roughly about 20% and global equities were down between 8% to 14%, depending upon the Australian dollar exposure.
When looking at the performance of both domestic and global equities month to date, both markets are up about 6%. What we think is most interesting is when we look at the day to day performance of equity markets over the month so far, it’s actually been quite a sawtooth type led recovery, which you can see in this chart.
We have a couple of days where markets are generally positive and that’s followed up with downward days. This sawtooth trajectory, in our view, is really symptomatic of a lot of the challenges that investors are continuing to face when thinking about what the outlook brings for equity markets and what the earnings outlooks brings for individual companies in an environment where many countries are still locked down. We’ve clearly got a high degree of uncertainty as to the outlook for economic activity and growth and what that means for corporate earnings going forward.
When we think about the performance month to date, we’re happy that we’ve started to see some positivity in regards to equity market performance. But in our view it does need to have an overlay of caution, particularly given the fact that there is still so much uncertainty as it relates to the economic activity, global economic growth and the outlook for that through the second half of this year. Equally, what it also means then for corporate earnings.
When we then think about the extent and size of those economic stimulus packages both at a fiscal, government and central bank level, it’s one of the reasons why we continue to expect that the sawtooth type recovery in financial markets that we’ve seen in April today is something that is likely to continue for some time to come. It will probably continue throughout the course of the rest of this year as markets start to digest new information, as economies move out of lockdown phase and as corporates start to move back into businesses as usual. From our point of view, it might be anywhere from six to 12 months down the track before we start to see that really come through in terms of the clarity of individual businesses, and economic activity. As a consequence, financial markets are going to be challenged in the way they look to price information, the way they think about the opportunities.
We’ve had a positive start to the month of April but that doesn’t necessarily mean that we’re out of the woods yet. We don’t expect that markets are going to remain in an upward trajectory on a consistent basis, day by day. So from an investment point of view, the theme and the strategy of actually building and adding to the market on an incremental basis, we believe is really important. Try and avoid picking the low points of the market. Have a strategy that has a more consistent approach to the way that you add to your growth assets and your higher risk assets within portfolios. Month to date has been a really good example of that, by taking advantage of some of those dips, but equally participate in the upward movement that we’ve seen over the course of April and in our view, we’ll continue to see as we move through the second half of this year into 2021.
As always, if you have any concerns about your portfolio, please feel reach out to your advisor.