June 19, 2020
Making Cents of the Markets
Listen to our first episode of Ready.Set.Retire! Lori and Jon McComb discuss the current environment, provide a checklist for a successful retirement and the top 5 questions we get from retirees. Listen here now to create a happy, healthy and wealthy retirement!
Listen to our latest Making Cents of the Markets segment on CKNW. We gave listeners an update on the markets, BC real estate, and financial fraud to be aware of. Listen here.
Be in the Know
North American markets bounced 1-2% higher this week after a small pullback the one prior. Momentum has slowed in the last 2 weeks. The main reason for the bounce was a report that the Trump administration is looking to pursue a $1 trillion infrastructure investment for the next stimulus bill. This plan would help boost the US economy with a particular focus on roads, bridges, tunnels, and 5G wireless infrastructure. We believe that this is another positive development that should support the economic recovery but also are wary that there may be delays due to differences between Republicans and Democrats on how such spending would be funded.
Another positive news development came in the form of an increase in US retail sales by 18% in May from the prior month, more than twice what economists were expecting, as lockdowns ended and consumers went out to spend money again. While consumers came back in May, it is still too early to say that things are back to normal as spending is still down 6% on the year because the pandemic has cut overall spending and ushered in a major shift towards online sales. Within Canada, we had a number of “older” data points that showed that manufacturing, wholesale, and retail sales all fell greater than expected in April. The Canadian market shrugged this data off and continued higher as investors have already shifted their focus to the rebound in May and June when provinces phased in their respective re-opening efforts.
We remain cautious at this juncture as we have not yet encountered a meaningful pullback and are still facing risks that the market may not be able to ignore in the coming weeks. The main risk is around COVID cases starting to increase again after global economies have re-opened businesses and public places. About half of these new cases come from the US as there are over 10 states that have seen increasing case counts as individuals have returned to “normality” too quickly and have clearly ignored previous precautions that they were taking. The good news is that deaths have not risen with case counts as improved treatments and warmer weather may be reasons behind improving mortality rates. Regardless, it is still too early to discredit these recent changes which warrant caution at this time.
After slightly decreasing our equity exposures last week, we did not make any further portfolio changes and remain in a relatively defensive position. We continue to review our overall equity and sector exposures and believe that we are well positioned for any near-term weakness that could occur if concerns around a “second wave” pick up steam. We remain diversified but are still holding higher weightings in defensive sectors such as consumer staples, telecoms, and utilities. We believe that our positioning is prudent to weather any volatility while allowing us also to continue participating on the upside when markets edge higher.
The pandemic has accelerated the digital transformation in many areas of business and our portfolios will continue to shift to take advantage of the new normal. From online shopping to remote working, there are plenty of changes that will be here to stay and efficiencies that will come as a result. We have already invested in many of these companies that will continue to take advantage of these shifts thus look forward to adding more of these to our portfolios as markets begin to move in a sideways fashion.
Chart of the Week
While we love looking at stock charts and sharing our insights on the markets, we also enjoy reading reports on how the world is changing and sharing our learnings with you. One recent report that we found interesting was how retailers have adapted through digital transformation as a result of COVID, which can be seen below with the various business model changes that these retailers have made:
Source – SoftwareAdvice.com
In order to survive, businesses need to make drastic changes in order to keep their customer base and to change with the times. If done well, these businesses can thrive and steal market share away from their competitors that do not choose to change. Our job is to identify and invest in these market leaders before this growth takes place so we look forward to how recent challenges lead to future opportunities.
Beyond the Markets
This Sunday is Father’s Day and while it might look a bit different than Father’s Days in the past, there are still plenty of things to do to celebrate the special day! The Pacific National Exhibition (PNE) is hosting a Father’s Day Weekend Car-B-Q where you can drive through and pick up pork ribs, poutine, or mac and cheese while viewing a magnificent car show presented by 360 Fabrication. Click here to purchase your tickets. Or if you want to be outdoors this weekend, Capilano Suspension Bridge Park has announced it is now open for pre-booked visits. It is a great time walk the bridge and experience the natural beauty of BC! Click here to learn more.
Happy Father’s Day!