March 27, 2020
Making Cents of the Markets
Be in the Know
Great to see a bounce this week with US markets rebounding 10% and 7% in Canada. The US markets are still off 25% though so much more recovery to go. This move was impressive as buyers waiting on the sidelines went to work, favoring economically cyclical areas like industrials and financials that were hit the hardest over the last month. As mentioned on the conference call earlier this week, while we can’t ensure that we have seen the bottom, we believe that this is a positive start to the bottoming process.
In the past month, we saw many investors in the market moving fully to cash, selling companies indiscriminately of the business or true value, which created greater than usual selling pressure on the markets. The strong bounce this week indicated that many of those panic sellers have now exited the market. We also saw institutional buyers putting cash to work as they bought their favourite companies off the lows. While these are positive signs, we expect volatility to continue as there still is a lot of uncertainty in the market and economy. Analysts continue to struggle to estimate the value of companies impacted as they need to know how long businesses will be shut down, details of global stimulus measures, and an idea of when the economy will return back to normal once everything re-opens.
One important factor in the efforts to protect the economy, the $2.2 trillion US economic stimulus package, was finally approved by the House of Representatives on Friday. This is critical as it will provide stimulus payments to individuals, expanded unemployment coverage, business loans, and other components to bridge the US economy over during this economic pause. Canada passed a $107 billion relief package on Wednesday to provide similar emergency aid and economic stimulus as many global nations follow suit. This is very important in the face of record unemployment claims as governments look to keep businesses alive throughout this shutdown leading to a stronger recovery than the alternative where these businesses are left to fail.
With stimulus packages approved, the market’s focus will shift back towards the spread of the Covid-19 virus which has picked up steam in the US and Europe over the last week. The positives are that China’s economy is re-opening after a 70+ day shutdown thus markets are looking at countries who have contained the virus for guidance on what they could potentially expect. We continue to analyze the information as it comes in along with corporate earnings and guidance with earnings season now begun.
We remained disciplined and were not buying yet as we still believe it is too early to be confident that a bottom is in. It would be normal to see a double bottom, or W, in the charts. We even used the recent strength to raise a bit more cash from our external managers as we prepare to re-enter into various sectors and companies that we believe will perform well going forward. We will remain patient and will step back into the market when we believe volatility and risk has come down. We are starting to get excited as many dividend paying companies have become very attractive with their dividend yields rising significantly after the latest selloff. This is one of the opportunities we are considering – adding both income and growth back into our portfolios though we must consider the potential risks before doing rushing to buy indiscriminately. We understand that volatility isn’t comfortable but are thankful for the trust you have all put in us to be your advisors and manage your investments through these challenging times.
Chart of the Week
Over the past month, we have seen oil fall from $60+ a barrel down to just over $21 due to the price war that Saudi Arabia and Russia started to take more market share from the US. This fall in oil prices also affected the Canadian currency as it weakened vs. the US Dollar over the same time frame. One can see this in the chart below which shows how oil has been correlated with the Canadian dollar over the last 2 decades:
We viewed this as an opportunity as we held a large amount of US cash and converted this back to Canadian dollars a week ago near the recent peak in the US dollar. We believe that oil will head higher again and that the Canadian dollar will strengthen with it but still favor US dollars and US companies over the intermediate term thus look to buy US dollars again at a much more favorable price. This is just one of the many ways we are managing risks and taking opportunities within your portfolios.
Beyond the Markets
As the COVID-19 outbreak continues to restrict many of our daily activities, there are a number of organizations that are providing food delivery and other services during this uncertain time. Companies such as Uber Eats and Skip the Dishes are great options to use and also support the small businesses that are being effected. They are also implementing methods to ensure the safety and convenience of workers and customers with contactless delivery as well as waived delivery fees for independent restaurants.
BC has also recently increased its 211 phone line for community services. The program matches seniors to volunteers that can help deliver food and medication to those in need. It encourages the ones who are most vulnerable to stay at home and to protect our community. Click here to learn more.
Finally, as a team, we would like to volunteer our time to any of our clients who need it. If you are unable to go to the store, we can pick up and deliver your food or medication. We are here for even something as simple as a phone conversation, which can enact a sense of normalcy. It is a difficult time, so if you need assistance, please do not hesitate to reach out.
Take a look here at our most recent North Shore News article where we discuss the coronavirus outbreak and its effects on the markets and investor emotions.
Listen to our latest Making Cents of the Markets segment on CKNW. We gave listeners a market update and discuss the difference in strategy between ETFs and active management. Listen here.
Take a look here at our latest article from Business in Vancouver’s Retirement Ready Magazine where we dive deeper into how to manage your emotions when investing.