It has been only a few weeks since the lives of Canadians and people across the world turned upside down. The recent outbreak of COVID-19 quickly become a full-blown pandemic. Markets around the world took nose dives as fear and panic ensued.
Between February 20, 2020, and March 23, 2020, the S&P/TSX Composite Index fell by 37.43%. It is one of the worst declines in recent history after the index reached all-time highs in the previous decade. At writing, however, the index is up 19.08% from its March 23 low.
Is the worst already over for the TSX? Let’s discuss the situation.
The Canadian stock market was already in bad shape leading up to the coronavirus outbreak. Oil prices plummeted following a breakdown in talks between Russia, Saudi Arabia, and other OPEC+ producers. Canada recently reported some of the lowest crude oil prices per barrel.
The onset of the COVID-19 pandemic blew the fuse as the S&P/TSX Composite Index fell drastically. The broad market pullback affected all the sectors in the economy. At writing, the TSX is showing signs of life as some stocks are bouncing back. Over the past three days, the index has witnessed a relief rally.
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Caution despite bullish trend
Economists in Canada think that nobody should be too confident about any short-term market predictions, whether up or down. There is zero certainty about how long the situation will last. For the TSX to go down 37% at one point suggests that future prospects should still be a concern for us.
We might not be out of the woods just yet and we may likely see more volatility until the global health situation improves. The recent bullish trend indicates that the the raw panic and fear has eased somewhat. However, it is not uncommon for the markets to hit an initial low, follow it with a sudden rally, and then continue a downward trend.
What to do at this time
I think it is best to remain cautious, despite the three-day bull rally in the market. Yes, the markets are showing some signs of optimism, but we cannot be certain that the worst is over until the pandemic is under control. I would suggest keeping an eye on stocks to help you wait out the storm.
To this end, I think Dollarama Inc. (TSX:DOL) could be a viable option. It is the largest retail operator in Canada and it can show us how the retail sector will fare in the coming months. There is a chance of a lockdown. If a complete lockdown occurs, it could affect Dollarama’s revenues.
Dollarama could, however, be a phenomenal investment if you are willing to wait out the bear market. As the COVID-19 pandemic drags on, Canadians will need to make the best use of their money. It means value stores like Dollarama could see a surge in sales as customers will look to buy groceries at lower prices.
The retail chain’s long-term prospects are bright as it aims to expand its presence in international markets. At writing, the stock is trading for $42.42 per share. It is up by almost 20% from its price on March 23, 2020.
While the TSX might be showing some signs of a rally, I would strongly advise being cautious during this time. There is a chance that the worst is not over for the markets this year. Invest in a stock like Dollarama as a safe, long-term bet for when the situation resolves itself and normalcy returns.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned.