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Coronavirus Sent Global Markets Tumbling in the First Quarter

By Professor Pierre Fournier

It has been a crazy month in global equity markets as investors try to figure out just how bad the economic impact of the coronavirus pandemic will be. Two weeks ago, markets dove as they began to price in the worst-case scenarios, but then later last week they posted their best three-day rally since the 1930s after the U.S. passed a US $2trillion economic stimulus package.

That kind of volatility has become the norm, with stock indices seeing 5 to 10 percent daily swings on numerous occasions, breaking all kinds of records. We’ve witnessed panic selling during the big drawdown days and then panic buying as investors worry about missing the recovery.

The coronavirus outbreak continues to act as a headwind for the market as investors grapple with the ongoing uncertainty around how long the economy will be closed. Unemployment is likely to rise dramatically over the next couple of months and the economic damage won't be abate until the coronavirus is brought under control.

On March 31, the Dow and S&P 500 closed out their worst first-quarter performance of all time. The Dow fell more than 23% in the first quarter, which was also its biggest quarterly fall since 1987. The S&P 500 fell 20% in the first quarter, its biggest quarterly loss since 2008.

For those who aren’t following the daily ups and downs in the market and don’t have any risk-management in place, quarter-end statements that are due to arrive over the next few weeks and will be a real eye-opener. Despite last week's recovery, global equities still remain 20 to 25 percent off of their highs.

This doesn’t necessarily mean that markets will continue to sell off, as no one knows how they are going to react. History has shown that bottoms are impossible to predict as most happen for no apparent reason other than the selling simply stops. 

That unpredictability is why it’s especially important to have a game plan during such times. To help, here are few ways to take advantage of the current environment that doesn’t involve calling a bottom.

REVIEW YOUR OBJECTIVE

It could be a great time to determine what the ultimate goal of your portfolio is, by asking exactly what you are trying to achieve. For example, if you are someone looking for income suddenly dividend yields have exploded higher. For example, utility companies are yielding 5 to 8 percent and many of the Canadian banks and telecoms are yielding 5 to 6 percent.


OPPORTUNITY

This could mean taking advantage of the rallies to reduce those fundamentally weaker positions in your portfolio while using the sell-offs to buy positions that you always wanted to own but thought were too expensive. If you are fortunate enough to have some surplus cash then perhaps it’s worth putting some of that money to work into equities.

For those overweight Canadian equities, surprisingly the Canadian dollar has held up well only losing 7.5 percent of its value this year compared to oil prices that are off a whopping 65 percent. This means there could still be some room to convert into higher-growth markets like the U.S.


CONTROL "YOUR EMOTIONS"

Finally, taking a patient approach is recommended, which means not giving into the fear of missing out during those large uptick days as I think there will be plenty of buying opportunities over the next couple of weeks and probably months.

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