The first earnings season since Covid 19 has actually been pretty good for most stocks considering the lockdown, mass unemployment and the lockdowns that have gone on since the pandemic started. There are several reasons for this. The first reason is the huge drops all the main markets (over 30% for most exchanges) took at the end of march. Secondly the fed continues to pump money into the market and lowering interest rates which helps hold up the market. Lastly all of the first quarter earnings won’t include the worst of the pandemic so far for most companies. That and the fact that investors fully expect everyones earnings to be really bad seems to have stopped everyone from selling off due to the poor earnings. While I don’t believe we will see lows like we did in march again, the next earnings season for second quarter 2020 will likely be far worse than this current earnings season has been.
The other factor that will definitely end up affecting the market and overall economy negatively is the negative effects of the high unemployment rate. In Alberta specifically the unemployment rate is nearing 14% while provinces like Quebec and Newfoundland have even higher unemployment. We are not seeing most of the effects of this currently due to payment deferrals and relatively high unemployment insurance payments which are paying up to 40% of the unemployed workforce more than they were making while employed. A large portion of this group of people will likely not have jobs to go back to, will be going back to reduced wages or will be unable to find work afterwards leading to a lot of people who will no longer be able to make their mortgage and car payments. This has a pretty high likelihood of reducing consumer spending and hitting the transportation and housing markets extra hard along with every other market to a lesser extent.
There is one more hit that everyone including the people lucky enough to not have their jobs disrupted by Covid 19 is going to have to take. After racking up an estimated 252 Billion in federal debt this year odds are pretty good that as soon as Covid 19 is under control Federal and Provincial taxes will be raised to try and lower government debt (which weirdly enough never seems to actually work). Then again I could be wrong on that since budgets do balance themselves after all…
I fully expect the markets to get worse over the next year or so before they start to head back towards the market highs we saw in 2019. That being said I am not smart enough to know when the markets have perfectly reached bottom personally, so I will continue to buy and average down on some stocks that I own while possibly adding a few to my portfolio in the meantime.
A few industries are actually benefiting from Covid 19 and will probably continue to do so when it is over. Namely Online retail companies such as amazon and shopify, dollar stores and grocery stores. I have not specifically been researching any of these companies so I cannot recommend any even to look at at this point. My strategy is more to buy into industries that have been hit hard and will likely recover after the pandemic is over.
My last piece of advice is that if you are going to buy a stock in a down market try to buy one of the top three companies in whatever industry you are buying into. When times are tough all stocks will go down and some public and private companies will go under. Once things start to pick up again the top companies in the sector will typically be able to gain most of the market share that the companies that didn’t survive used to have making them even more profitable than they were before the downturn. This usually leads to good things for their investors (higher stock price and/or dividends than before).
Disclaimer: It really bothers me when investing articles are clearly politically biased and as such I will try my best to avoid any political references in any of my articles unless they directly affect the market somehow. That being said if our prime minister says something I can easily make fun of in an article (such as budgets balancing themselves) , I probably will regardless of their party.