Welcome to August.
With the financial headlines again dominated by the rising economic impact of COVID-19's resurgence in Australia, it's worth taking note of the Aussie share market's – and Australian people's – remarkable resilience.
If you're living in Victoria and subject to the new curfews, distancing and isolation measures, know that the rest of Australia stands with you. The nation appreciates the great sacrifices you're making both in your personal and financial lives to help get this pandemic off our shores.
Treasurer Josh Frydenberg noted that the cost of a stage three, 6-week lockdown in Victoria had previously been estimated to cut GDP by $3.3 billion. With Victoria moving to stage four, and the measures potentially lasting longer, the true cost is one more uncertainty investors will have to swallow.
And let's not forget that Victoria makes up some 25% of the Aussie economy.
Image source: Getty Images
Resilience in the face of uncertainty
Investors tend to hate uncertainty. It sees them run to perceived haven assets like government bonds, cash and gold. That's one of the reasons why gold has been trading at record prices in US dollars, currently at US$1,976 (AU$2,768) per troy ounce.
Much as I'd like to tell you otherwise, the uncertainty around the coronavirus is unlikely to let up in August. One big question is whether the second wave can be contained within Victoria. Another is when an effective vaccine will be developed and widely available.
But here's the remarkable thing.
Despite all these doubts, the S&P/ASX 200 (INDEXASX: XJO) just posted its 4th month of consecutive gains. It ended the month of July up 0.5%, despite Friday's 2.0% sell-off.
Now in these highly volatile times, that may not sound like much. But a 0.5% monthly average gain equates to an annualised nominal gain of roughly 8%. That's the power of compounding at work for you.
I've stressed nominal gain here, because as you likely know Australia has entered a period of deflation. After a sharp plunge in the last quarter, the consumer price index is down 0.3% over the past 12 months. Unlike our accustomed inflationary environment, where you subtract inflation from your share returns, we're now in a position to add the amount of deflation to discover our real adjusted returns.
You see, mild deflation really isn't the Bogeyman it's generally made out to be. Unless, of course, you're sitting on an ever growing trillion-dollar debt pile.
Before digging into a few specific shares making big moves up and down on Friday, let's round off the big picture look of the ASX 200.
The index's sharp fall commenced on 20 February. And the panic selling didn't really let up until 23 March. By then the average value of Australia's largest 200 listed companies had fallen a gut wrenching 37%.
And then things turned around.
While still down 11% year-to-date, the ASX 200 is up more than 30% from its 23 March low. And in early afternoon trade, it's again demonstrating remarkable resilience, down by 0.32% to claw back most of today's early losses after tumbling 1.1% in the first 20 minutes following the opening bell.
And that's with all the negative virus news coming out of Victoria over the weekend.
A market of stocks
You've likely heard the old cliché, 'It's not a stock market, it's a market of stocks.'
It's admittedly trite, but like most clichés it also rings true.
Take last Friday 31 July, for example.
After posting a relatively strong month, the ASX 200 closed the day down 2.0%. But some shares, as you'd expect, lost a lot more.
AMP Limited (ASX: AMP) topped the losing board, with the AMP share price shedding 12.5% on the day.
The major daily fall for the diversified financial services company was driven by its announcement lowering its half yearly profit guidance. The stock, with a market cap of $4.8 billion, has struggled in the wake of the Financial Services Royal Commission. The AMP share price finished July down by 21.5%. At the current price of $1.40 per share, its worth putting AMP on your watchlist for an eventual, and potentially sharp, turnaround.
On the other end of the spectrum, Super Retail Group Ltd (ASX: SUL) topped Friday's list of gainers. With a market cap of $2.0 billion, Super Retail is one of Australia's biggest retailers. And on Friday, the Super Retail share price rocketed by 9%.
The surge was likely driven by the company announcing increased sales expectations for the 2020 financial year. The full results should be released on 24 August. If the renewed and higher expectations are met, the Super Retail share price could certainly run higher from here, in my view.
Foolish takeaway
If you've let all of the uncertainty surrounding the coronavirus mitigation efforts keep you on the sidelines, it may be time to step back onto the field.
The next months will almost certainly see continued volatility in Australian and international shares. But with record low interest rates and record government stimulus packages likely to remain in place as long as needed, the equity markets have a lot of helpful tailwinds.
If you're investing for the long-term, I suggest ignoring the shorter-term price swings and investigating quality ASX shares while they're still selling for a bargain.
