August 21, 2020
Making Cents of the Markets
Listen to our latest Making Cents of the Markets segment on CKNW. We discussed what’s next for the markets in today’s economy, the US dollar, and active management vs. buy and hold strategies! Listen here.
Be in the Know
North American markets continue to slow their latest advance as both the Dow and TSX closed flat on the week while the S&P 500 edged higher mainly due to strength in technology stocks. Volatility has decreased significantly as the market has been far less sensitive to news events over the past month. Economically sensitive sectors such as Energy, Financials, and Materials were the main laggards this week as they pulled back mainly due to comments from the US Federal Reserve that expressed concern about the ongoing impact of Covid on the US economy.
Economic data was relatively mixed this week as we saw new unemployment claims in the US climb back above 1 million though the trend has continued in the right direction. Manufacturing and service data improved further in the US as Friday’s PMI indications beat expectations and showed additional strength in these areas of the economy. The real bright spot in the US today is the housing market as existing home sales rose 25% in July, hitting a new record high, as pent-up demand and low interest rates have led to stronger activity and prices.
The highlight in Canada this week was that retail sales increased 24% in July which was in-line with analyst expectations. Inflation remains low as housing prices increased 1.7% over the past year which continues to lag price increases in the US, likely due to elevated prices and a relatively weaker economy here in Canada. The federal government announced a 1-month extension to the Canada Emergency Response Benefit (CERB) and a change to the employment insurance program to allow more individuals to receive financial assistance. This is expected to cost $37 billion and has slowed the recent strength of the Canadian dollar against the US dollar and other global currencies.
As momentum within equity markets slow down, we continue to err on the side of caution and remain in a relatively defensive position as we have decreased our equity weightings and invested more in bonds over the past few weeks. We remain bullish on the markets over the intermediate term but recognize that there is a strong likelihood for a shallow pullback prior to the US election in October. We will share our thoughts on the upcoming election and its potential effect on markets in the coming weeks as Biden continues to lead in the polls.
Our portfolios remain well diversified with strong allocations to defensive assets like gold and bonds that can benefit from any increased uncertainty. We also have cash balances that we plan to put to work upon any near-term weakness. Most of our equity allocations remains in the US and US dollars which is also a defensive asset that tends to benefit when markets weaken so we believe the portfolios are well positioned for any environment moving forward.
Chart of the Week
The S&P 500 was able to close the week at a new record high which leads many investors to question if this latest advance is sustainable in the face of the issues that global economies are facing today. Using the past as our guide, one can see that new all-time highs are not bearish as performance after new all-time highs tends to be quite strong 12-months after a new high has been reached:
Furthermore, we have not seen new highs in over 5 months which infers that we could see even stronger returns over the next 12-months. We are on a path of recovery and believe that markets can continue to advance as profits recover and grow, supporting higher equity prices.
Beyond the Markets
This weekend, head on over to Chilliwack for fun like no other! The Chilliwack Corn Maze is back with a unique design that highlights the importance of togetherness. In May, there was much uncertainty regarding whether or not the attraction would move forward for its 22nd year. However, the annual event was given the green light with some new safety measures in place. So bring the whole family for some safe and socially-distanced excitement!
The comments and opinions expressed in this newsletter are solely the work of Pinkowski Wealth Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Pinkowski Wealth Management does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.
CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA