Life in Lockdown – What does this mean for Markets?
With more and more of Australia, and the world for that matter, living in lockdown, most regular investors probably don’t spend too much time thinking about financial markets or their personal portfolios. Daily thoughts are likely more focused on how to manage a zoom call and home school all at the same time, as opposed to the performance of their superannuation funds! However, it is essential to continue to monitor your finances, especially in uncertain times.
While the lockdown situation here in Australia is wreaking havoc on peoples businesses and social lives, it may come as a surprise to you that July capped off a 10th straight month of gains for the Australian Share Market. This is the longest run of monthly improvements for 14 years. This continued growth has also seen the Australian market reach all time highs, with the gains continuing in this first week of August also.
Without being as consistent as the Australian Market, the United States share markets have also seen accelerated and consistent growth over the last 12-14 months also, sitting themselves on all-time highs, respectively.
So while this is great news for investors and portfolios across the world, it does pose a few questions, notably;
- If everyone is in lockdown and the economy looks to be struggling, why are the markets doing well?
- What is the long-term outlook and forecast? Will this growth eventually come to a grinding halt?
These questions are completely natural to ponder after 14 months of continued growth. While it is impossible to know the exact answers to both, we do have some idea.
One of the main reasons that markets are continuing to perform is based on expectations, both past and future. It’s a two-way street. Part of the reason for the continued market growth is an expectation that things will eventually re-open, and when they do, there will be a surge in consumption on things that have been unavailable. One of the other reasons for the market growth is an exceeded expectation. With things locked down the way that they are, there would have been an expectation that the overall economy (domestically and globally) would be in a far worse position than it currently is. As a result, this exceeded expectation is contributing to market growth.
However, history does tell us that markets are volatile, and do not continue to rise forever without some bumps along the way, which brings us to the second question – will it all come to a grinding halt at some point? This question is a little harder to answer than the first, and would rely on many factors related to the virus, the economy, consumer confidence and overall investment cycles. With so many variable factors that impact on markets, the answer remains the same – focus on what you can control and ignore the noise beyond that. Afterall, nobody knows the exact day and time that markets will stop climbing. The solution to not knowing exactly what is around the corner is to ensure that portfolios are individually tailored to ensure that they are prepared for all changes that may come, through a personalised asset allocation, individually tailored to your longer term needs and goals. If you have this, then you can sit comfortably knowing that your portfolio is as best prepared as possible for all of the twists and turns along the way!
Although we are all locked down at present, please note that I am still actively working both via phone and email, so if you have any questions or queries, please do not hesitate to reach out!