Regular investors are having a ball, as the coronavirus-induced sell-off in March 2020 seems to be over. It appears the continuing stock rally reversed the developing bear market. However, billionaires and seasoned investors think it’s not a temporary phenomenon similar to the market crashes in 1987 and 1998.
On February 20, 2020, the S&P 500/TSX Composite Index closed at 17,944.10 — a record high. After 31 days on March 23, 2020, the index dropped to a low of 11,228.50. The drastic fall is history, as Canada’s main stock market is up 44% (16,222.50) from its COVID-19 low as of September 11, 2020. Year to date, the loss is only 5%.
The fear of a market crash persists because the full impact of the COVID-19 pandemic has yet to materialize. Once the psychological support or the stimulus packages expires, most developed nations, including Canada, will suffer economically. The severe pain could push markets to the brink of disaster.
COVID-19 is the root cause of the deteriorating global economy. We’re six months into the pandemic and still have no vaccine or treatment to fully contain the deadly virus. Meanwhile, Canada’s deficit and national debt are rising at an unprecedented pace. The same is happening in most G7 and G20 nations.
There’s hardly a comparison with historic stock market crashes, too, since the trigger is unique. It forced businesses to shut down. Governments had to close borders and impose lockdown measures. Market observers find the sudden crash in 2020 and the quick rebound somewhat bizarre.
The economy is weakening while the stock market is advancing. Notably, the scale of government spending is massive. The emergency measures are critical but can’t continue indefinitely. COVID-19 changed the structure of the global economy from stable to unstable. Thus, a catastrophic economic breakdown is not far-fetched.
A top pick in troubling times
If the investment landscape is problematic because the stock market and economic realities are not in sync, the best reaction is to move to safer assets. The best choice is Fortis (TSX:FTS)(NYSE:FTS). This utility stock is a defensive all-star and a Dividend Aristocrat with bond-like features.
You don’t have to time the market to invest in Fortis. Buy ahead before disaster strikes. The $24.67 billion electric and gas utility company is an industry titan that’s been paying dividends for 46 consecutive years. The dividends are mainly safe largely due to its rate-regulated business. As an investor, you can expect an uninterrupted income stream.
The share price fell below $50 at one point in March but has since returned to normal pre-coronavirus levels. Fortis is gaining 1.22% year to date and offering a respectable 3.6% dividend yield. Management is confident the company can fulfill its promise of increasing dividends by 6% yearly through 2024.
Ease your fear
People keep talking about the next stock market crash, but none of the predictions say when it will occur. The only sure thing is that the extent of damage from the pandemic is likely to be huge. It can push stock markets off the cliff again. Your only recourse to easing fear is to take a defensive position.
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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.