{"id":825,"date":"2020-05-01T06:17:58","date_gmt":"2020-05-01T13:17:58","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=825"},"modified":"2020-05-01T06:17:58","modified_gmt":"2020-05-01T13:17:58","slug":"chalten-investment-review-q1-2020","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/chalten-investment-review-q1-2020\/","title":{"rendered":"Chalten Investment Review – Q1 2020"},"content":{"rendered":"

The first three months of the year have brought radical change to our daily lives and to financial markets as a result of the global spread of the new coronavirus, COVID-19. \u00a0\u00a0Efforts to contain the spread of the virus have meant that almost all countries have mandated lockdowns to varying degrees which, in most cases, have had a dramatic impact on employment, trade and economic activity in general.\u00a0 As we know the market embeds new information very quickly into prices and as the real impact of the virus becomes clearer, along with the associated fear and uncertainty, risky asset prices around the world have fallen markedly.\u00a0 \u00a0When investors are fearful and uncertain, they demand higher returns for bearing risk and prices adjust downward as a result.\u00a0\u00a0 <\/em><\/p>\n

While markets have recovered somewhat from the March 23 low point, it is difficult to predict what will happen in the near term.\u00a0 Will markets continue to recover?\u00a0 Will the potential for economic damage continue to scare investors and as a result will we revisit lower market prices?\u00a0 These are difficult questions to answer but whatever the outcome in the coming weeks and months, we should still expect to be compensated for bearing risk and if history is a guide, markets do tend to deliver positive returns after sharp declines.\u00a0\u00a0 <\/em><\/p>\n

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The chart above shows cumulative average returns for a broad US stock market index over one three and five years after market declines of 10%, 20% and 30% going back to 1926.\u00a0 Some recoveries are sharp while some take a little longer and the best way to put yourself in a position to take advantage of the recovery is to stick with your plan, i.e. stay diversified, maintain an allocation between risky and safe assets that suits your risk tolerance and financial goals, and stay disciplined.\u00a0 It is very difficult to call market peaks and bottoms and making trades based on fear or speculation is likely to be counterproductive.\u00a0\u00a0 Sticking with your plan through market downturns and recoveries, however challenging that may be, is key to having a successful long-term investment experience.\u00a0\u00a0 <\/em><\/p>\n

Q4 Market Review <\/u><\/em><\/p>\n

Global stock markets peaked during the third week of February before declining significantly over the next month then recovering somewhat during the last week of March. \u00a0\u00a0The decline was one of the swiftest in market history.\u00a0\u00a0 Governments and central banks around the world reacted quickly to stabilize the financial system and to provide a variety of different support mechanisms to assist individuals and businesses adversely impacted by the situation.\u00a0 Like other central banks, the Bank of Canada reduced its overnight target lending rate to try to maintain liquidity in the banking system.\u00a0 Government bond yields fell and prices rose as investors sought safe havens for their capital.\u00a0\u00a0 The price of oil collapsed over the quarter as major oil producing countries failed to resolve disputes over production and supply levels, a crisis on its own that was completely overshadowed by the virus.\u00a0 The Canadian dollar lost over 8% of its value compared to the US dollar over the quarter, enhancing returns for Canadian investors with assets denominated in US dollars. <\/em><\/p>\n

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