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The Pandemic and the stock market: a good opportunity to buy, or something to stay away from?

COVID-19 has sent global equity markets on a roller coaster leaving many wondering what kind of a turn is next. From the market’s record-breaking highs in February to the market bottom in March, investors have been holding on to their seats. This turbulent market is enticing many new investors because of the recent return potential. For example, if you would have bought the Canadian market portfolio on March 23rd, and held Until August 31st, you would be sitting on over 47% returns. This is nearly double the overall change that has occurred over the previous 5 years! It is not hard to see why new investors are trying to get in on some of these results.

The question now presents itself: with the market portfolio taken in its entirety having significantly recovered since the start of the uncertainty caused by Covid-19, is now a good time to invest, or is it too late? This question can be broken down into two distinct parts: Overall market performance, as well as sector performance.

As far as the entire market performance, as well as macroeconomic outlook, we still have very important uncertainties that are yet to be resolved. Unemployment is still much higher than it was before the pandemic. Full employment is generally considered to be around 5% unemployment. As to Statistics Canada, in August, the country is sitting at 10.2% unemployment. Another item uncertainty for Canada is the U.S. election that is right around the corner.

 Although the market significantly recovered from the pandemic, the pandemic has created winners, and losers that, taken together, camouflage underlying performance. There are some sectors that have fully recovered, and even surpassed pre COVID-19 levels; there are still plenty of other sectors that are still feeling the effects of the virus. The technology sector, for example, has completely surpassed pre-pandemic levels, and many companies have even benefitted from the pandemic, such as online shopping services and video communications software. Take Amazon (AMZN), for example, was up over 80% from March 23rd to August 31st. Other sectors aren’t doing so well. Airlines are an example of this. Air travel still has a long road to recovery ahead. Physical distancing measures coupled with a reduced demand for air travel, continue to have disastrous effects on all fronts of the aviation industry. Take Air Canada (AC.TO), for Example. Air Canada’s stock traded at roughly $52 at its peak in January and is currently trading around $15 at the time of writing this article. Air Canada has slightly recovered from its lows in March, but it still has a long way to go before a full recovery.

The takeaway: There is still a significant amount of uncertainty around how the world will look in the future beyond Covid-19, and uncertainty is generally rewarded. Although it is true that the market has significantly recovered, there are many areas that are yet to bounce back, but the question remains as to when and if this will happen. If you are not one for rollercoasters, you probably shouldn’t be on one. In times of uncertainty, the stock market is full of surprises and unexpected turns if you can hold on through all the excitement of the short term, you will likely be happy you came along for the ride.

Statistics Canada employment rates:


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