Investors who stayed the course through 2020’s COVID crash have reaped the benefits of one of the largest rallies in modern history, but with experts divided in their market outlooks investors must carefully consider their portfolio positions.

Following the bloodshed on markets in early 2020 (when the S&P 500 gave up 30% in the space of 22 days), more than 40% of investors sold some of their shares hoping to bolster their cash position in the event of a recession.,

In many countries, including Australia, these fears were soon realised, but even sooner assuaged and markets quickly entered a recovery phase that took them to record heights.

Investors who gritted their teeth and held their shares through the worst were rewarded – the S&P 500, for example, regained those losses in just five months, and by March 2021 were up roughly 100% for the year.

Unsurprisingly though, many of those who sold out early came to regret that decision.

Now, as US and Australian markets start to come under pressure, investors are growing increasingly divided over whether this rally can continue and what might happen if it doesn’t.

Confusion abounds

The rapid spread of COVID’s more contagious Delta variant has thrown a spanner in the works of many businesses and derailed (or rerouted) plans for the second half of 2021 and into the coming year.

Further complicating the issue is the imminent threat of inflation. The prices of consumer goods in the US and the UK have both recorded historically large increases in recent months, weighing on market sentiment.

Both the US Federal Reserve and the Bank of England have attributed these gains to temporary factors and taken little action to combat what they see as only a temporary problem.

But this approach has been met with disapproval from a growing number of analysts, who are now calling for central banks to step in before inflation becomes too much to manage.,

These aberrant market conditions make it difficult, and sometimes impossible, for investors to rely on their usual modelling techniques to make sense of what’s to come.

Alex Waislitz, the billionaire founder of Thorney Investment Group, perhaps put it best when he told Reach Markets “speaking to a bunch of smart people will give you different views on the markets”.

It is a situation he said he has never seen before.

“There are many who think that, particularly with the low interest rate environment and the amount of cash on the sidelines, there’s no reason markets shouldn’t continue to trend up,” he said. 

“But there are others who are nervous about multiples that are being priced on a lot of stocks, and at the same time the looming threat of inflation.”

Amid these confusing conditions, experts are calling for investors to consider their portfolio construction and reminding them of the importance of diversification.

Please join Reach Markets MD Patrick Nelson on Tuesday, to hear about a new investment that removes high volatility from the equation and positions itself into assets with a higher positive momentum. The investment is structured to adapt to the market conditions, which provide consistent returns over a long-term period across a broad range of global assets, even in the absence of equity market growth. Book here

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Sources:

• Forbes: Covid-19 Crisis: Investing Lessons From The Pandemic
• thinkadvisor: Nearly Half of Investors Sold Stock in March; Most Now Regret It: Survey
• CNBC: S&P 500, Nasdaq close at record highs as Wall Street looks for strong finish to August
• CNBC: S&P 500 falls Friday, notches second straight week of losses in September slump
• Reuter: Why Fed’s Powell still thinks high inflation is ‘temporary’
• CNBC: Here are some tips for beating inflation as prices start to rise
• CNBC: Consumer prices jump 5% in May, fastest pace since the summer of 2008
• BBC: Inflation: Price rises see record jump as food costs soar in August
• The Sydney Morning Herald: As it happened: ASX sets its seventh record high in eight sessions
• Market Watch: Dow climbs at the open but broader stock market kicks off Thursday’s trade under pressure
• Reach Markets: Thorney Investment Group’s Alex Waislitz discusses investing during a ‘challenging’ year
• The Conversation: Rising inflation: unless we act now, it will not be temporary
• Seeking Alpha: The Uncertainty That Fills The Market Right Now