Market Commentary

Making Cents of the Markets

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Listen to this week’s Making Cents of the Markets on CKNW where we discuss the upcoming US election, mistakes people make in a recession, and the importance of consolidating your accounts with one advisor. Listen here.

Be in the Know

North American markets closed slightly lower this week (0.5% to 1.0%) as they digested numerous earnings updates and reacted to any news around a potential stimulus deal prior to the US election. It appears that the likelihood for a near-term deal remains low despite progress being made in many areas. We believe that markets have priced this in and shifted their focus to earnings season as a fifth of companies have now reported their third quarter earnings, with over 80% beating analyst estimates. We believe that earnings will remain in focus until after the US election when there will be more clarity on control of power and a larger stimulus bill.

On Thursday night, we followed the final presidential debate that was a much more civil affair in comparison to the last debate, but initial polls and market reaction suggest it has done little to sway voting intentions. Biden continues to lead in national polls by about 10 points which has widened in October as markets rallied higher during this period. Months ago, many believed that a Democrat victory would be negative for markets and the economy as Biden is expected to increase taxes. This has changed as many favor Biden over Trump due to an expectation that a Democrat victory could result in a larger stimulus package, an infrastructure spending bill, and stronger trade relations.

Economic data remains robust in the US as manufacturing and services continued to show expansion in October despite stimulus delays which have continued to support markets in the near-term. In Canada, the recovery in retail sales continued which is now 3.5% above levels registered a year ago in August. Core inflation increased slightly to 1.0% in September (from 0.8%) as price increases were seen in shelter, food, and health/personal care. Next week the focus shifts towards third quarter GDP estimates in the US and Europe as we expect continued expansion and recovery in two of the largest global economies.

Our Strategy

Our portfolios were relatively flat over the last week as they moved in line with markets. We are encouraged by the market activity over the last few weeks and slightly added equity exposures but remain below our pre-election equity targets. We want to remain conservatively positioned prior to the election result which will help assist our actions moving forward. We believe that markets will be positive regardless of the result due to stimulus expectations but understand that policies and views differ greatly which will affect our sector positioning in the near-term.

If President Trump wins, we would expect corporate tax rates to remain low (at 21%), an addition of policies to lower drug prices, and a continuation of trade wars between key partners like China. Lower taxes would continue to favor leading sectors that include technology, consumer products, and utilities/telecoms. If Biden were to win, we would expect taxes to increase but to be offset with a larger stimulus plan and infrastructure spending. A larger stimulus bill would be more supportive of the whole market, but additional spending should favor economically sensitive sectors such as industrials. We look forward to navigating this uncertainty over the coming weeks.

Chart of the Week

We are strong believers that no matter the result of the US election, equity markets will likely continue higher fueled by continued global stimulus, a potential vaccine, and a synchronized global recovery. The result matters of course, but moreso due to uncertainty being eliminated around who is in power and what policies are likely to follow. This can be seen in the chart below which shows how equity flows typically rebound shortly after the election and continue in the subsequent year:

Markets like certainty, which is why by simply clearing the event risk off the table by getting the election over and done with, could itself be a key upside catalyst for equities in the fourth quarter and beyond.

Beyond the Markets

On October 24th, British Columbians are heading to the polls. While many have already voted either through advanced polls or mail-in ballots (with over 1,000,000 votes already cast), we are urging those who have not yet done so to exercise your democratic right. Make your voice heard and cast your vote this Saturday! And if you are heading to your local polling station to vote in person, make sure to stay safe and practice social distancing. Click here to find where you can vote.

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.