Economy and Indices to April 2020

The ASX Top 200 is off -21.6% for the month of March 2020.

Markets have rallied from their lows in a ferocious fashion, with daily movements of 5%, 6%, 7% or more. These movements are typical in a bear market, known as Bear Market Rallies.

If history is any indication of how long these volatile times will last, it could be anywhere from a few months to a few years. Although the periods in the past that have taken years to recover such as the Great Depression in 1937, were not met with co-ordinated government stimulus input.

Government Stimulus

The month of March has seen more Australian stimulus announced than ever before. The recipients cover the unemployed, business owners, employers, the health care sector through to a new Job Keeper payment – paying employers to keep their recently sacked, or yet to be sacked employees on the books.

The markets have non seen a domestic stimulus package of this size before, let alone the simultaneous announcements of all the other developed nations in the world. If there was ever justification for a rapid recovery from a ‘self-induced’ recession, it would seem that the actions taken this month are the best foundations for such a recovery.

Market Reactions and New Leaders:

With all this money being spent, we’re not forecasting a rapid recovery. History shows that we will see volatile months ahead until the leaders of the last market cycle have given up their top position to newly defined leaders.

The best way to identify the new leaders is through comparing the companies that recover and rise in price against the others that languish in the lows.

Monthly Leaders

This month shows that the top three sectors on the ASX are:

1. Consumer Staples (supermarkets) – 3.29%

2. Health Care -3.93%

3. Utilities -3.9%

It is unlikely that a market rally will be driven from Utilities and Consumer Staples as there are normally considered defensive companies which move up and down less than the rest of the market.

When these leaders show a few months with the same names at the top of the ranking, that is when the market is poised to advance.

Laggards this Month

The worst performing shares on the ASX this month are:

1. Energy – 45.3% (yes, for the month)

2. Property Trusts – 42.4%

3. Financials (Banks etc) -29.19%

Financials make a large portion of the Australian market, without their inclusion in a rally, or them increasing in value, it is unlikely we will see the broader market rise.