Market Trends and Leaders to March 2020

Share markets across the globe have fallen dramatically in the final weeks of February.

Normally February is a month where news feeds are filled with companies’ financial statements from the reporting season of the previous period. This reporting season however, has coincided with an increased number of COVID-19 (Coronavirus) cases spreading at exponential rates across more than 60 countries at the start of March.

It would seem as though the markets have fallen on concerns of the virus outbreak impacting economies across the globe, with distribution and transportation networks already shut down in China the fears that this will extend across the global and that the already anaemic global growth will be further crippled.

Some commentators point to previous pandemics and how quickly the markets turn back up – especially considering that the reporting season in the US markets as well as domestically have fared reasonably well.

In Australia there were more companies that ‘beat the street’, or exceeded analyst’s expectations, than in the the average reporting season – which generally constitutes a ‘good’ reporting season. Clearly those statistics have been steamrolled by the wave of concerns about constrained supply chains.

Another perspective is that the global markets were running hot anyway and were due for a pull-back.

It’s true that many of the leading companies have been ‘priced for perfection’. This means that their share prices reflect forever-growing sales; earnings and profit margins that just keep growing. Some have drawn parallels to the Tech-Boom, that became the Tech-Wreck some 20 years ago. The key difference however, is that the leading companies today do actually have sales, some profits as well as dividends, being paid to shareholders. So those comparisons are a little over-stretched.

Bringing the bullish fever of Tech companies back a notch or two, we do see strong growth forecasts and massive buy-back schemes (companies buying their own shares which reduces the number of shareholders to split the same profits across) which have helped fuel the market higher.

Adding more fuel to the fire is that the low interest rates have shares looking like the best house in the street – where the street is filled with terrible investment opportunities promising little, or in some cases, negative growth. When everything else looks terrible, the share market has attracted many more investors trying to find a positive return.

As we enter March 2020 there are few places that have gained in this market. In times of market turmoil however, opportunities are created and some of these opportunities haven't been seen in Australia for years.

When the market has a large wash-out and all shares are hit hard across the board, the leaders of the next market cycle are able to stand out and be identified. As the rest of the market languishes in the lows and turns investors away for another few years, there are market leaders that have composed themselves and are set to soar in the next cycle. Astute investors watching for the leaders are the ones who are rewarded; and rewarded early in the cycle.