Market Update August 2020 – Gold and Oil Contrasting Fortunes
A Record Breaking Year….and we’re only two thirds way through
2020 will be a standout year in the investment annals for all kinds of reasons both good and bad. The year to date has been peppered by all kinds of market events and included a number of records being set. These events included the following:
- The fastest ever 30% fall from peak (22 days for S&P 500)
- The fastest 40% market rally (54 days for S&P 500)
- Two of the best ever 1-day returns for S&P 500 – 9th March (+9.3%) and 24th March (+9.4%)
- Two of the worst ever 1-day returns – 12th March (-9.5%) and 16th March (-12.0%)
- Apple became the world’s most valuable company with a valuation in excess of $2 trillion
- From a peak in March the dollar has fallen by almost 10% against the euro
- Gold has risen by 25% since the start of the year
- Oil has fallen by 40% year to date
Gold and Oil Year to Date 2020
Contrasting Fortunes
Arguably, what makes 2020 different from other bear markets and recessions is that it has been driven by health considerations rather than economic factors. In effect, it has been an engineered recession as Governments shut off their economies in response to the emergence of Covid. And because it is seen as an engineered recession, markets seem to have taken the optimistic view that what can be switched off can be switched on again (albeit with massive levels of Government and Central bank support) and that the arrival of a vaccine will be the event to trigger this reversal. The reality is unlikely to be that simple.
While the world will eventually return to a semblance of what it was pre-Covid, there are likely to be some fundamental changes in the way people organise their daily working and leisure lives. Some of these changes may include:
- An even greater reliance on the use of technology in virtually every area including communications, business interactions, manufacturing, healthcare etc.
- A permanent drop in the amount of travel with obvious impacts on airlines and tourism
- Acceleration of the trend towards online shopping and away from physical outlets
- More home working and less time in the office with less need for office space as a result
- A shift away from inner city living
- Government sponsored infrastructure investment to assist the recovery process
- Green agenda moving to the mainstream
These trends and others will have long term implications for companies and markets. Companies which are directly plugged in to benefit from these trends or who can adapt quickly enough to do so, will be the long term winners in a post Covid world.
While we are positive on equities long term we are maintaining our short term cautiousness. Investing in the right equities will be critical and phasing of new investments is to be advised. We are also encouraging clients to increase their holdings in investment grade bonds and to perhaps hold a position in gold.
Finally, we are encouraging all clients to review the cash holdings in their pension and retirement funds with the imminent arrival of negative interest rates. Harvest is currently researching a range of low risk options for clients seeking an appropriate alternative to cash deposits.
If you have any queries in relation to the above content please contact us on 01 2375500 or email justask@harvestfinancial.ie
Gold and Oil Contrasting Fortunes by Terry Devitt – Investment Director Harvest Financial