The 2020 playbook so far

2020 has been a wild year for investors, with a multitude of events that have ranged from the biggest losses in stock market history to now, where we are seeing the best quarter in decades. We started the year with Bushfires in Australia. Since then, there has been trade wars, pandemics, protests, riots, lockdowns, negative oil prices, and the markets have crashed and rallied around these events and many more not listed here with extreme cases of volatility.

Finishing out the 2nd quarter of the year, The S&P 500 finished on high notes along with the NASDAQ, the Dow Jones, the ASX 200. Even currencies have mimicked this action, The Australian Dollar has been the standout in my book, Mimicking the S&P move for move.

S&P500 Daily vs AUDUSD Daily almost identical.

But other such as the Euro and the Pound are worth the mention and have tried to keep pace. Even precious metals have tried topping the highs in Global Financial Crisis.

The most interesting part of this scenario is that they have all performed in some of the worst economic conditions I have seen in my lifetime, regardless of the market. The massive stimulus that has come through both fiscal and monetary policy over the past few months has been the leading driver in my opinion, giving investors a feeling of risk off, knowing that there is a tail wind of support to help prop economies up.

The other side to this is the influx of new investors, we have seen trading volumes and accounts sometimes 20-30 times greater than the peak days of 2019, bringing a new type of investor that is reading to invest in bankrupt and insolvent companies.

While what we see in the charts is the image of a V, there is still a disconnect. The pandemic is still on going, and the more recent news of resurging outbreaks, coupled with dire warnings from the World Health Organisation and of course Dr. Anthony Fauci’s warnings. Unemployment remains high globally the standout being the United States with more than 20 million still unemployed. Retail and manufacturing numbers are still well below target figures, oh and we have tensions between nations that rival if not go beyond what was felt in the cold war.

Its within my own view, that the second half of this year is not going to have the same remarkable performance. The traditional playbook for investing has all but been thrown out the window, instead of looking at macro and micro data we have some traders reading medical journals, and ultimately this means markets are likely to remain volatile for some time.

I am certainly trading in a different way than before the pandemic, with a much shorter-term focus than my usual style. And I feel that this is unlikely to change for some time, with earnings advice not being offered for most listed corporations, and of course so much geopolitical news affecting the rest.

Before year end, we have a presidential election, and between now and then my thoughts are that the corona virus is going to lead the news, followed by relations between the many currently feuding nations of the world.

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