233063
It's Your Money  

Be wary of market rebound?

Global stock markets have been climbing steadily for the past 2 1/2 months from their late March lows and that rebound came to a screeching halt on June 11 when various markets closed the day down around five per cent on average.

On Friday (the next day), the markets rebounded but only made up a portion of the ground from the previous day’s losses. Is this a minor blip in the continued recovery or the start of a second market pullback? 

While history has shown that many of the strongest growth periods occur immediately after major drops, this rapid rebound has left many wondering why it's so strong and if it will last?

There are certainly many people wondering if investors are getting a bit ahead of reality. Sure, central bankers have responded with overwhelming force to the pandemic, and public health authorities are gradually increasing the re-opening measures – but there is still a lot we don’t know about what comes next. 

At this point, we really don’t know how well contained the virus is and if it will produce a second (or even third) wave. Another wave would very likely re-shut parts of the economy that are slowly restarting. 

The way the markets have surged back to pre-pandemic levels (not the Canadian market so much but U.S. and global ones) suggest investors have all but relegated the idea of a second wave to zero. I would suggest that we don’t know quite enough just yet to make such a call. 

Having said all of that, we have seen many times in the past where a rebound like this directly after a major market downturn does, in fact, last and the markets continue to make new highs. The point is, we don’t know yet and your investment decisions need to take this into account.

In addition, we have growing renewed trade tension between China and the U.S. which could put further strains on company earning outlooks. 

And to add more fuel to the volatility, we have a U.S. election that is just around the corner – an event that will very likely increase market volatility on its own. But it is very important to remember that market volatility surrounding U.S. elections is typically due to investor emotions and not fundamentals and should not sway your investment decisions. 

So, to be clear, I am not suggesting we are definitely going to have another pullback and you should sell everything to cash. But at the same time, I don’t think this is the time to get extremely aggressive with your investment plans either. Like most other environments, the reasonable approach would be to stick to a well diversified allocation that is within your risk tolerance comfort.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

COMMENTS WELCOME

Comments are pre-moderated to ensure they meet our guidelines. Approval times will vary. Keep it civil, and stay on topic. If you see an inappropriate comment, please use the ‘flag’ feature. Comments are the opinions of the comment writer, not of Castanet. Comments remain open for one day after a story is published and are closed on weekends. Visit Castanet’s Forums to start or join a discussion about this story.



More It's Your Money articles

229713
About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].

 



230807
The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories



233111