Two major events occurred this week – Johnson & Johnson, which is working on a Covid-19 vaccine, moved up its expected start date for human trials to July from September. In the afternoon on Thursday, Powell revealed that the Fed could leave interest rates near zero through 2022 as the economy recovers from the coronavirus shutdown. The Dow Jones Industrial Average dropped 282 points to 26,989.99, and the S&P 500 fell 0.53% to 3,190.14 at the close. The Nasdaq Composite continued to find its way higher, advancing 0.67% to a record close of 10,020.35.
Investors might not have noticed amid all the excitement, a stealthy slide of the U.S. dollar may have had something to do with the stock market’s rally since March. The ICE U.S. Dollar Index (DXY), a measure of the U.S. currency against a basket of six major rivals, rose 0.3% Friday to 96.70, but remained on track for a 1.4% weekly decline. The index had traded at a high near 103 in mid-March as the panic created by the COVID-19 pandemic created a global scramble for dollars. The index has retreated around 5.9% from that peak.
Future Wealth’s View
It is becoming increasingly clear to us that absent a vaccine, the markets are going to be range bound i.e. we may not see the market getting back to its previous highs until we see one of the pharma companies convincingly show results that their vaccine works and it is ready for the entire global population. In the meantime, a weaker dollar is making exports of U.S. goods cheaper to foreign buyers. But thanks to the dollar’s role as the international reserve currency, it is also a boon for global growth.
Given this environment, the only viable strategy is to buy and hold stock of quality companies. The reason is that the buy and hold investment style makes it easier to purchase quality companies at a decent price and with such a strategy, the investor is really not seeking a share price jump tomorrow but rather looking ahead for solid growth and dividends over time. Of course, that could mean missing out on the phenomenal appreciation of Covid stocks.
Everyone wants to get in before the crowd catches onto the next ‘sleeping giant’ Covid stock but does it really matter in the grand scheme of things given the current state of affairs?