Welcome to April. Last month marked a year since governments around the world told people to stay at home and global markets crashed in reaction to growing uncertainty on the impact of COVID-19. This month we take a look at what happened in March, where markets are a year post crash and what the biggest takeaways are for investors.
So, what happened in the markets last month?
- Bond markets were given a boost thanks to the Bank of England’s decision to keep the base interest rate unchanged for the foreseeable future.
- Sectors that underperformed against technology stocks last year (think energy, mining and banking) started to gain lost ground.
- In the US, President Biden’s $1.9 trillion stimulus bill helped hard-hit pandemic sectors gain momentum in the markets.
- At the end of the month one of the world’s largest container ships became stuck in the Suez Canal blocking off one of the most important trading routes. Oil prices rose for a short period of time on fears of low supply.
And how are investments performing?
Last March stock markets dropped by more than 30%, from the end of February to early April, as economic activity slowed and governments rolled out emergency lockdown measures. The bear market lasted 33 days. Then markets started to rebound. And fast. Central banks lowered interest rates and governments introduced fiscal support packages to keep people and businesses afloat. Shares of companies that thrived in a new locked down world (think Amazon, Zoom and Ocado) saw their value soar while traditional value stocks (like BP and Virgin Atlantic) were harder hit.
So where are we a year later? Since March 2020, US popular stock indexes including the Dow Jones, S&P 500 and Nasdaq have seen huge gains. Similarly the UK’s largest index, the FTSE 100, has gained more than 30% since last March and European stocks are back to recording pre-pandemic levels. The bottom line: it was a good year to be invested for those who stuck to their long term plan.
And now back to 2021. In March we continued to see strong growth in equity markets as vaccine roll-outs and the lifting of government restrictions bolstered markets. The global bond sell-off from February cooled down as central banks confirmed their commitment to keeping interest rates low and fears over inflation were muted by no significant spike in consumer prices.
Lastly, what does all this mean for me and my money?
Market crashes happen. But so do recoveries. Markets go up and down, it’s just what they do. What’s important to remember is that when the market crashes you want to be in a good position for a strong recovery. And the good news is that markets tend to go up over the long run.
Tune out the noise. Don’t listen to the pundits on BBC who yell ‘buy’ or ‘sell’. History has shown us that trying to time the market usually leads to worse returns. Instead, have the conviction to stick to your plan in both the best and worst of times.
Diversification helps spread your risks. Smart investors find a way to manage risk and one of the most important tools they use is diversification. If you spread your investments across a lot of different industries, countries and risk levels, you can protect yourself against some of the more major market swings.