The stock market, also known as the share or equity market, is a large market where individuals and businesses can buy and sell shares of business entities. These shares represent ownership claims to the business. These securities are listed on a public stock exchange. The market is dominated by large companies, but small companies can also participate in it by buying and selling their own shares.
The share market is characterized by volatility. Over the long-term, the market tends to perform well. However, short-term blips can discourage investors. Last year, the JSE recorded an annual total return of 13.5% while the money market returned 7.6%. This volatility is an inherent feature of the share market, but it does not mean you should avoid it.
As the economy grows and consumer confidence rises, the share market will likely follow. A strong economy with low unemployment will be beneficial to share prices. However, there are many risks that can drag the share market down. Last quarter, the economy contracted by 0.3 per cent but is expected to rebound in July. Although these numbers are not a cause for alarm, investors should consider diversification as an investment strategy to protect their portfolios from market downturns. Diversifying across sectors and asset classes is the best way to protect your portfolio.
A major milestone for the market in August is profit reporting season. During this season, companies on the Australian Securities Exchange (ASX) publish their earnings. Typically, companies provide guidance to the market. This year, however, few companies have provided guidance. Because of the uncertainty surrounding the global pandemic, it is difficult to know how each company will perform