With many investors now considering how this COVID-19 pandemic will continue to roll out over time, deciding when to jump into the market remains a key concern for most investors today.
The potential shape of the recovery has been described by a number of letters i.e a V- shaped recovery versus a U-shaped or L-shaped recovery. These terms continue to be thrown around as potential near-term trajectories for the market recovery from this pandemic.
My personal opinion is that a V-shaped recovery is not likely to happen. The economic effects of sky high unemployment rates are simply not yet known. Also, businesses will take time to reopen. In many cases, increasing bankruptcy rates mean less likelihood of a near-term recovery. Bankruptcy issues take years to resolve and work their way through their economy as we saw in the financial crisis.
That being said, I do agree with the majority of analysts on Wall Street and Bay Street, who believe the next leg of this market downturn will be much more selective in terms of which sub-sectors get punished and which ones get let off the hook.
Airlines, travel-related businesses and casinos, for example, are likely to feel the heat more than consumer staples or other necessary businesses, as consumers focus on getting back to work and surviving as opposed to picking a vacation spot or gambling at this point in time.
I'd encourage investors to consider which companies meet the “discretionary versus necessary” task before investing. I expect the next two to three years to be a period of time which really separates the wheat from the chaff.
Invest wisely, my friends.
