When will be the next Stock Market drop?

Source: The Motley Fool

 A lot of investors have been wondering when another stock market drop will happen.  Whether that’s a week, month, or years from now it will happen. However, many analysts are predicting that another market dip at least is expected in the near future. While we can’t predict to the moment when that could happen, there are some indicators that could tell us another stock market nose dive is coming. By looking at what’s already happened, we can perhaps figure out what to look out for. After all, history repeats itself. Stock market drop: the why Of course, there’s the obvious: COVID-19. Almost as soon as COVID-19 became known globally, it seemed to hit almost every shoreline. As the virus spread, the markets fell. By mid-March, the S&P/TSX Composite was just one of the composite to have fallen nearly 40%.  While no one could’ve predicted the virus, many analysts believed a stock market crash was coming. Another factor was the oil and gas sector. The price of oil had been dropping for years, but then it came to a crashing halt, with Russia and Saudi Arabia creating an oil price war with the Organization of Petroleum Exporting Countries (OPEC). Yet on top of all this was a poor economic situation that’s been getting worse since the last financial crisis. Unemployment was up, the U.S. Federal Reserve announced an inverted yield curve, and there has been a large increase in corporate indebtedness. Gross world product rose from 84% a decade ago to 92%, about $72 trillion. As the economic climate worsens, companies can’t repay debts or refinance them, causing the restructuring we’ve seen. The present There seems to now be some rose-coloured glasses in the markets today. The stock market crash is practically in the rear view to many, with a rebound underway for the last few months. But many analysts are warning that investors are falling into the “bear market trap.” Many believe the economic situation has changed when really, it hasn’t. Part of the rebound has been from news that jobs have been added and a vaccine could soon be underway. But there isn’t a vaccine available yet, and hundreds of thousands of jobs don’t replace the millions of people in Canada with less or no work. This is why analysts believe the markets will continue to drop over the summer months of July and August. What next? Oil and gas prices are still weak. The coronavirus is still very much part of our everyday life. Countries are still struggling as debt climbs and businesses weaken. Companies large and small are going to have to make further cuts if there is any hope of survival. This is likely to trigger poor earnings reports, and poor share price performance. So it is more than likely, before the summer is out, we are going to see a significant drop in the markets. How to prepare There are a few things you can do to prepare before the next market downturn. First, sell stocks if you need money in the next year or so – or otherwise move to cash. Make sure you can pay your bills before anything else.  Next, make sure your shares are in solid companies that will come out of a crisis well, even if that means a slump for now.  And finally, keep some cash on hand to invest in some more good companies should the market drop again. And there are always opportunities Source: Just Service Global

• Innovation in health care is changing the world. While facing some significant potential headwinds at the start of the year, many health care stocks have seen a dramatic change in sentiment since, and greater levels of demand

• Technology across all industries (including banking) will continue to change the world we live in 

• The Energy sector is so oversold (with crude as the core driver)

• Gold will always be a trusted hedge

• Selected alternatives such as hedge funds can have their place in portfolios

• Dividends can be even more important in a low interest-rate world. For investors seeking dividend income, the combination of record dividend cuts and historically low interest rates has emphasized the importance of being able to identify those funds or companies that can sustain or quickly restart dividend payments.

As always, if you think its time to review your portfolios talk to your Just Service network adviser.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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Investment Ideas for the Next 12 Months

The team at Just Service Global hope all clients using our service are staying safe and taking due care in such difficult times.

Positioning your portfolio for the risks and opportunities ahead

Source: International Adviser Publication

Four themes driving investment markets over the next 12 months: recession, low oil prices and yields, stimulus, recovery, and active edge.

For each of these themes, there are seen as three key investment ideas. The coronavirus outbreak prompted the fastest-ever bear market as the MSCI All Country World Index plummeted 33.6% from February 20 until March 23. Then, after stimulus was announced, the index rallied 27.8% to the end of April despite deteriorating economic data.. Investors now face some difficult questions. Is the recent stock market recovery sustainable, or is it merely a bear-market rally? Which investments are the likely winners and losers as the global economy recovers? And how should portfolios be positioned given there is so much uncertainty about the future? Our themes are based on how we believe the global economy will perform over time and the investment implications arising from that. For each theme, we offer three investment ideas. 1. Recession The global economy is expected to severely contract in the first half of 2020 at a magnitude not seen since the Great Depression in the 1930s, then either sharply expand in the second half of the year or recover more gradually into 2021. It is challenging to make money in recessions. Although money‑printing quantitative easing could be inflationary, inflation is unlikely to rise in the short term, not only because of the recession, but also because secular forces including low energy prices, demographics, and technology keep it low. Central banks have been struggling to lift inflation to meet their targets. Investment Theme No. 1: Recession

Some sectors are likely to continue to be winners. If the recovery stalls and lockdowns and social distancing remain in place for a longer period, technology may benefit, allowing for remote connectivity, online shopping, and cloud computing. This is on top of ongoing technology‑led disruption, where investors should be on the side of the disruptors, not the disrupted. If the coronavirus makes a comeback after the summer before a vaccine is developed, health care will remain critical.2.

2.  Low Oil Prices and Yields

Overshadowed by the coronavirus crisis, the other drama in 2020 has been the fall in the price of oil. The challenge with oil is not just the fall in demand—when was the last time you filled your car with fuel?—but also oversupply. A low price of oil typically means low inflation.

Bond yields are low and are likely to remain so for the next 12 months. Low yields make it harder for banks to make a profit. Growth stocks in the U.S. may continue to outperform value stocks because 40% of the Russell 1000 Growth Index is technology while 20% of the Russell 1000 Value Index is financials and 5% is energy (0% in the Russell 1000 Growth Index).2 Low oil prices and low yields mean there will be some losers and some winners.

Investment Theme No. 2: Low Oil Prices and Yields

3. Stimulus

The unprecedented amount of stimulus injected into the global economy over the past few months has offered a lifeline for individuals, businesses, and economies. While policymakers may have kicked the can down the road, leaving themselves with a mountain of public debt and possibly inflation to deal with another day, the situation would have been much worse without the stimulus they provided.

Investment Theme No. 3: Stimulus

Policymakers are all in—they are unlikely to be able to reverse their policies until the economy finds a strong footing. These policies have created both challenges and opportunities for investors. The three investment ideas here focus on (1) yield scarcity—when cash and government bonds yield close to nothing, (2) piggybacking central banks—buy what they buy, and (3) risk assets—in a flood, everything floats.

4. Recovery

Crises typically go through three phases: meltdown, bear-market rally, and recovery. The meltdown is behind us. However, it is unclear whether the rebound of risk assets from their March lows is a dead cat bounce, meaning markets are likely to go through periods of significant ups and downs, or a sustainable recovery.

Investment Theme No. 4: Recovery

For the recovery to be sustainable, markets needed three things: (1) the peak infection rate to have passed, (2) a convincing and aggressive monetary and fiscal stimulus, and (3) receding volatility. Although all three are in place, many unknowns linger: a risk of a second wave of infections, the ability of a scarred economy to recover, and the pace of returning to a new version of normality. One scenario is for a steep and strong economic recovery in the second half of 2020; another is for a gradual recovery into 2021. One thing is sure: The crisis will end, and a recovery will begin.

The three investment ideas here are (1) diversification—true diversification, not perceived diversification, as some assets (e.g., corporate bonds, commodities) might exhibit low correlation with equities in good times but high correlation in bad times; (2) balancing offense and defense; and (3) flexibility—portfolios must be nimble, ready to adjust.

As always talk to your adviser within the Just Service network if you would like information or otherwise review your savings, investment or pension plans.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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Reasons to be optimistic with investment markets

The team at Just Service Global hope all clients using our service are staying safe and taking due care in such difficult times.

Source: Momentum/Harmony fund managers

1. Coronavirus will pass, whereas fiscal and monetary stimulus will be long-lasting.

Bond yields are likely to remain low for many years from now, with base rates at all time lows. Governments worldwide are increasing expenditure to extreme levels that have historically only occurred at times of war, representing 10% of GDP in the US and as much as 20% in the UK, with more likely to come.

These stimulus measures will ripple through the global economy for years to come, driving a strong growth recovery once coronavirus is beaten, while reducing the risks of widespread corporate defaults and supporting higher valuation multiples for equity markets.

2. The best returns tend to come from the point of greatest pessimism.

As Warren Buffet famously said, investors should be “fearful when others are greedy and greedy when others are fearful.” One must remember that the value of an equity stake in a business is the present value of all future cash flows, not just those over the next few months.

The best rolling ten-year equity market returns, measured by the Dow Jones Industrial Average index, have come from the times when all hope seemed lost.

Investors buying equities at these points – including at the end of WW1 and WW2, at the depth of the great crashes of 1932 and 2009, and after Black Monday in 1987 – benefited from 10 year annualised returns of 10-15% per annum.

3. Markets will recover long before the economic and humanitarian crisis is over

Financial markets always move to reflect a change in the outlook for economies and corporate profitability well ahead of the fundamentals actually reflecting that.

This ‘lead’ effect means that declines in global growth and corporate earnings, as well as a rise in defaults, are already very much ‘priced in’ at this point.

Markets are already discounting much of the grim news which bombards us daily and, while the news flow is unlikely to improve for some time, they will almost certainly begin to recover well before the worst of the economic and humanitarian impact is felt.

4. For those making regular savings, or with additional reserves to invest, lower valuations mean more shares/units can be acquired for any given cost. This ‘dollar cost averaging’ effect creates greater value over the long run.

Market outlook: where to invest - and where to avoid!

Source: Just Service Global

The recovery could be fairly swift and a lasting positive impact on e-commerce, lifestyle brands that support social distancing and remote working (like tele-meetings)  

Losers

The biggest losing sector so far this year is the energy at 68% (energy demand and glut of oil  - crude oil prices have fallen dramatically)

Others on the losing end:

- gas and consumer fuels 

- airlines, travel, automobiles, hotels, restaurants and leisure

- financial services

Where to invest now

- Utilities are expected to be resilient as they provide essential services to the community

- Technology sector - with a greater embrace of remote technologies (good for the big tech providers).

- 5G Technology: the coronavirus contagion is reinforcing the importance of the ultrafast 5G technology, the next generation of wireless. 5G announces the capabilities of the Internet of things and home gadgets.

 - Alternatives: The main categories of alternatives

1. Hedge fund investments. Through those who pursue a number of specialist strategies

2. Private equity funds investing directly in to private companies or investments or engage in buyouts of existing companies

3. Real estate This liquid but measures such as student housing data centres, infrastructure and toll booths very appealing

4. Credit: any credit that is not traditional. For example, collateralized loan obligations or the direct lending industry

5. Commodity traded advisors (CTA) trend following strategies that buy and sell season markets depending on momentum and volatility

Today alternatives are becoming more popular to retail investors.  This is not surprising given markets are becoming harder to navigate with opportunities becoming more difficult when you are seeking low volatility, enhance returns and an increase in overall diversification. All risks should be clearly explained and documented by the financial advisor offering “alternatives”

In the current market alternatives could populate approximately 25% of portfolios.

For all enquiries email info@justserviceglobal.com

Regards

Phil Neilson

Managing Director

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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