It took a little over one month for the Dow Jones index to lose 36 percent of its value. The US economy has never seen a bear market retraction on this scale. After hitting rock bottom, it only took a month for the markets to recover around 50 percent of what they lost. All of this happened while most of the world was sheltering in place.
Technically, we are in a bull market again. We are in unexplored waters, so the logical question is, what will the future bring? Is this the calm before the hurricane? Or are we on the verge of an unprecedented post-pandemic stock trading frenzy?
How Has Business Been Affected by the Coronavirus Pandemic?
The COVID-19 pandemic and the subsequent lock down has led to one of the largest wealth transfers in the history of the United States.
As of early June 2020, stock markets are rising and big businesses are rebounding. And in a true tale of two city fashion, small businesses are taking the brunt of the economic loss. Many are filing for bankruptcy.
It seems as if this is the first recession were big businesses are walking away virtually untouched. Some of them are experiencing surprising growth. Proof of that is that the S&P 500 and the NASDAQ 100 are on track to make a full recovery in early summer.
Is Now the Time to Buy Stocks?
The answer depends on when you need the money and how you are planning on using your money. It may be better to look at the situation from the flip side. Is now the right time to completely exit the stock market? Absolutely not.
Should you expect continued stock volatility throughout 2020?
Absolutely. The people who will be hurt the most by the expected volatility are the ones who will completely bail. However, individuals who ride the wave and take a calculated risk could see things payoff in the near future.
The one thing that’s true about bear markets is that foreign investors who have money on the line in the middle of a bear market make it seem like the world is ending. But it’s when everyone else thinks the situation is hopeless that savvy investors hold on for the ride. Although there was not a pandemic in 2008, we saw something similar. There was a phenomenal recession, and people were losing everything. In 2009, the markets took baby steps upward. Many of the long-term effects of the financial crisis were still being experienced.
We don’t know when the COVID-19 pandemic will end. But we do know that markets have followed a similar pattern through Ebola, AIDS, SARS, terrorist attacks, wars, and civil unrest. This too will pass.
Some of the richest people on the planet have made their money by having the wherewithal to invest and buy stocks during the darkest times in modern history. Their resilience, tenacity, and bravery has been rewarded. Warren Buffett has been quoted as saying, “Be fearful when others are greedy and greedy when others are fearful.”
Digital trading platforms offer the most flexibility for online traders. Still, you need to be aware of most common security risks like identity theft, malware, data breaches, and phishing schemes which have grown during and after the pandemic. A reputable trading platform protects your account by using SSL encryption, two-step authentication, system monitoring, they log you out automatically after a certain period of inactivity, and they operate on secure servers.
One tip from Will Ellis of Privacy Australia was to avoid brokers that allow for add on plugins or bots. These bots programmed in basic more vulnerable languages like C++ create a large attack vector for would be scammers and hackers.
Digital security is of the utmost importance when transitioning funds to and from various accounts. A recent Dark Reading article covered what some of these look like, “Hernandez found a universal lack of security controls up and down the list of 79 applications he tested. Across all three categories, he saw examples of decades-old protocols being used for communication that were sending transmissions unencrypted. He also found examples of unencrypted storage, unencrypted log files, and no enforcement for strong password policies or automatic logout.”
It’s important to remember only vulnerabilities on front end platforms are discerning but back end platforms are rarely audited and pose an even larger security concern.
What Will Investing Look like Over the Summer and Fall?
All one can do is speculate because we don’t know how the COVID-19 pandemic will play out. It’s likely that we will see individuals building portfolios that insulate them from uncertainty. This means equal weight, profit, and protection.
While summer and fall investing may be heavy, it’s unlikely that we will see an unbridled type of investing. Individuals who can afford to will probably take advantage of cheaper stocks because of current market conditions. However, wise investors will still hold onto cash so that they have sufficient liquidity.
Although there is a lot of uncertainty, there are certain trends that we are watching that can help us predict what to expect from summer investing. For example, de-globalization is a fact. If the pandemic and the lack of ability to get needed medical supplies has taught us anything, it’s that countries that do not manufacture and consume locally are at the mercy of those that do.
The downturn has been uneven, with certain countries and sectors getting hit harder and some sectors(just think about Zoom) booming. Aviation is dead in the water, and the retail industry has taken a series of body blows.
The United States, the world’s biggest economy, is going through an election year and is experiencing unprecedented civil unrest. Couple that with difficulties with China and the dominance of tech giants, such as Facebook, Apple, Google, and Amazon, and it becomes difficult to see what the US economy will do from now on.
Asia is being propelled forward by China, and there is no sign that this dominance will disappear. This means that many emerging markets will experience a prosperity that they have not experienced before. All of this gives us a big picture of what post COVID-19 investing and markets might look like. This also gives us an idea of what savvy investors will include in their portfolio.
What Might a Profitable Portfolio Look like This Summer?
Since globalism is losing popularity, it’s reasonable to invest in companies in one’s home country. The exception would be global utilities and technologies.
Now does not seem to be the time for passive investing as it will not offer the desired exposure, nor will it provide passive protection from volatile markets. Now is the time to handpick stocks that belong to companies that seem to be vital in our current circumstances and in the near future.
Things are changing so rapidly that it is almost impossible to predict what the markets will do a few days from now, much less a few months from now. Every day is a learning experience for investors. Every day brings a new challenge that requires the ability to financially cope, survive, adapt, and hopefully prosper. Successful investing in the future will require modesty and the ability to observe, learn, and make strategic decisions based on new data as it arrives.
Interesting related article: “What is a Trader?“