Hold on to your stock portfolio, folks — the next three to five years will be the run-up to a new bull market. Canadian and U.S. economies will soon be on their way to recovery from the pandemic, as we move into this year’s “cure phase.”
But will it be enough to just invest the way we always have in the past? Before COVID, many of us have purchased stock based on an industry or sector analysis. But now that the world is learning to coexist with the virus, things may be very different.
Good, old-fashioned stock picking and bottom-up fundamental analysis will be needed this time around. For those looking for a stock tip, we expect financials, discretionary and industrial stocks to be favoured over the next 12 months. Long-term positions should be considered for technology, communication services, health care and consumer discretionary stocks.
It is my opinion that the North American markets, in general, are the best-positioned equity markets in the world in terms of assets. These markets have already rebounded more than 50 per cent from the lows of March 2020. This year we expect less policy uncertainty, more fiscal stimulus and a stronger cross-border relationship with respect to trade now that we have the Biden administration in the U.S.
Right now, the vaccine rollout seems to be having its difficulties. But as time goes on and vaccine accessibility becomes more widespread, it will ultimately become the game changer. Soon, it will unleash the world’s pent-up demand for services, (especially travel) as we head toward the late summer and into the fall of 2021.
We can expect interest rates to stay low, as our governments try to encourage future consumer spending. The U.S. Fed and the Bank of Canada have both put freezes on rate increases until 2024, largely because of continued below-targeted inflation numbers.
Remember that we are still in recovery mode as we experience a broadening out of the markets. Ask your adviser about the fundamental analysis of your stock portfolio. Good fundamentals don’t change in a day just because of a virus.
Do not sell off stocks that have a longer-term perspective and be careful not to make any snap decisions in the momentum of the market.
— Christine Ibbotson is author of Don’t Panic: How to Manage Your Finances and Financial Anxieties During and After the Coronavirus and How To Retire Debt Free & Wealthy. She also writes the Moneylady column. askthemoneylady.ca