October 2, 2020
Making Cents of the Markets
Listen to this week’s Making Cents of the Markets on CKNW where we discussed investing in technology, investor expectations given the recent volatility, and rethinking retirement because of COVID-19. Listen here.
Be in the Know
After 4 negative weeks in a row, North American markets rebounded 1% to 2% this week which was rather impressive in the face of negative headlines that included President Trump contracting coronavirus and a continued stalemate on the latest US stimulus bill. The House of Representatives voted on Thursday to approve a trimmed-down $2.2 trillion stimulus bill, but it is expected that this again will not be approved by the Senate. We remain hopeful as parties met daily this week and are optimistic that they will find a middle ground to get this across the finish line.
Gains were broad-based this week as economically sensitive sectors such as Financials and Materials led the way. Economic data was generally positive and supportive of this strength as manufacturing data in Canada and the US showed continued expansion. Canadian GDP rose 3% in the month of July, in line with expectations, as the rebound naturally slows down as the easiest portion of the recovery is behind us. We believe that investors should not fear a pending growth lull as this is what we normally observe though a post-recession recovery and because of synchronized support efforts from global central banks.
On Friday we saw the US unemployment rate decline in August to 7.9% from 8.4% though the bad news is that the decline was mostly the result from individuals leaving the labor force and not being counted as unemployed. We also learned that personal income declined 2.7% in August in the US which is likely the result of the end of extended benefits, highlighting the importance of continued stimulus to support the recovery. Despite these updates, consumer confidence and spending remained strong as the recovery is expected to see some speed bumps along the way.
We remain cautious and did not make any notable moves within our portfolios this week as we actively monitored our positions and reviewed our exposures. It is too early to see if this week’s positive action represented a resumption of the uptrend or just a near-term bounce which is why we remain conservatively positioned with lower equity exposures than usual and a greater short term allocation to cash and bonds.
We believe that the near-term outlook is uncertain with the upcoming election in focus that could result in volatility prior to November 3rd . We are very comfortable with our current holdings in any result and have no exposure to potentially contentious sectors such as pharmaceuticals and energy. While we could see near-term upside due to a stimulus bill or vaccine developments, we believe that it is more important to manage risk effectively in the face of uncertainty.
Chart of the Week
Risk management is done in many ways and one that we often mention is investing in the right sectors and avoiding the wrong sectors. One sector we have no exposure to remains the energy sector which is currently down 55% in Canada. One can see this in the 12-month chart below of the Canadian Energy Index ETF:
Many analysts have noted that energy companies are trading at historically cheap prices and while that may be true, we do not want to speculate on this sector as most companies are far from profitable at a $37 oil price where it sits today. We prefer to focus on less speculative sectors where companies are not only profitable but growing their profits through the global pandemic. This approach allows us to maintain higher quality portfolios with lower downside risk which is something most investors would appreciate after a year like 2020.
Beyond the Markets
If you’ve been missing travelling and discovering new and exciting cultures lately, then we’ve got the perfect solution. Enjoy Vancouver’s annual cinematic celebration from the comfort of home with the Vancouver International Film Festival. From now until October 7th, you can choose from a variety of films that tell stories from here and around the world by streaming from the VIFF platform. Book your tickets and learn more here.
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