InvestNow News – 15th May – Pie Funds – CIO Report: Credit and equity markets rally during best April in 82 years
BEST MONTH IN DECADES
April 2020 was the best performing April in 82 years and the best performing month since 1987 for the S&P 500.
Stock markets continued the rally off their March 23rd lows driven by the Federal Reserve substantially increasing their purchases of assets from $4.2 Trillion in early March to $6.65 Trillion on April 27. This extra cash has buoyed both credit and equity markets.
A CLSA broker survey of Australian fund managers in mid-late April suggests managers are holding higher than normal levels of cash, 55% expect the ASX200 to reach another low, 76% were bearish on a 3-month view, but 60% were bullish on a 6-month view. This is understandable: uncertainty is high as we don’t know how long lock-downs will last or what the world will look like afterward. However, as uncertainty abates, investors will become more bullish and stock markets will increase.
You can’t wait for clarity. The best bargains exist at the time of maximum uncertainty but, by definition, no-one knows when that is until afterward. It may already have passed. But because the future remains cloudy, opportunities remain plentiful. Because the consensus view is bearish it means to some extent negative outcomes are already priced in and less likely to happen.
The severity and swiftness of the recent stock market falls caught many investors off guard. Even Warren Buffett had been a net seller of stocks in April, primarily airline stocks.