Market Update – April 10, 2020

The world continues to react to the ongoing COVID-19 health pandemic, with new information coming out with respect to the various economic stimulus packages, as well as the various quarantine and self-isolation regulations. As the world settles down into this new normal, it appears that the markets have started to settle as well, with strong growth seen this week in both the Canadian and American markets. The Toronto Stock Exchange posted positive growth everyday this week, with the S&P 500 and DOW posting positive growth on three of four business days. These returns are found here:

End of Day April 6th5.06%7.03%7.73%
End of Day April 7th0.16%-0.16%-0.12%
End of Day April 8th2.29%3.41%3.44%
End of Day April 9th1.73%1.45%1.22%

In fact, the TSX closed at 14,166.23, the highest closing value in almost a month, and the best weekly growth since 2009. The US markets also followed this trend, with US stocks posting their best weekly gain since 1974 (source: Claire Ballentine Financial Post). The weekly returns are found here:

Market IndexReturns Week of March 30th
TSX (Canada)9.49%
S&P 500 (US)12.10%
Dow Jones (US)12.67%

While encouraging, it is important to note that the markets continue to show substantial volatility. A market volatility measurement, called the VIX, continues to show that volatility and COVID-19 concerns will persist for several months, meaning the volatility being seen currently is likely to continue (Source: April Joyner Globe and Mail). However, while the value of this volatility index is still quite high, it has reduced substantially since mid-March, another indication that the markets are continuing to adjust to, and settle into, this new economic reality.

When investing, diversification is a key concept that helps to minimize market volatility and generate better long-term returns. This is done by investing in various industries, geographic locations as well as in both bonds and stocks. Diversification is even more important in volatile markets, as a diversified portfolio helps to handle market fluctuations. The following graphic shows annual returns based on different investment strategies. Source: SUNLIFE: Diversification can help smooth out returns over the long term

This shows that a diversified portfolio, while never the top producing option, is also never in the bottom quarter of returns. In other words, a diversified portfolio tends to perform comparatively well in both positive and negative market scenarios, making it a solid investment strategy when markets see-saw between positive and negative returns in such a short period of time.

Please let me know if you would like to have a call to review how well you are diversified or would like to review your investments in general. Lastly, we at DBA would like to wish everyone a nice holiday weekend. Although different than what we would all like, I hope you are able to take some time to be with your family this holiday, if only over FaceTime.

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