Market Commentary

Making Cents of the Markets

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Be in the Know

Equity markets globally had their worst week since March as they reacted to ongoing uncertainties around the US election, the ongoing spike in Covid cases resulting in additional lockdowns & restrictions, and companies reporting their third quarter earnings results. About two thirds of companies have reported earnings so far and over 85% have beat earnings estimates as the economic recovery continues to pace ahead of analyst expectations. Despite strong results, markets continued lower as uncertainty is ruling markets in the near-term given the unknown effects of the latest spike of cases.

Markets finished the week down 5-6% as we continued to move defensively throughout the week, reducing our equity exposures further and raising more cash. We are pleased that our Legacy portfolios were down less than half of the indices as we remained cautious ahead of the US election. We believe that markets will remain choppy as Biden’s lead in the polls have narrowed slightly, though the reaction will depend on the winner and if congress remains divided. Regardless of the winner, markets typically recoup pre-election losses and head higher over the following 9-12 months.

In Canada, the Bank of Canada kept interest rates steady near zero this week and stated that the economy will probably not recover fully before 2023 and that a vaccine may not be widely available until 2022. The Canadian economy grew 1.2% in August from the previous month, beating expectations of 0.9% as the fourth consecutive expansion though economic activity remained around 5% below February’s pre-pandemic level. Outside of Canada, both the US and Europe reported stronger than expected GDP estimates for the third quarter as the recovery continues to pick up steam despite today’s uncertainties. Next week the focus will remain on November 3rd’s US Election.

Our Strategy

Managing downside risk remains our priority today as we expected volatility to pick up in months prior to the election and reduced our exposures to equity markets and raised more cash. Market health was quite strong prior to this week, until the recent spike in Covid cases led to further selling which prompted us to reduce our exposures further as we followed our discipline and will remain patient before putting this cash back to work. We know that volatility is a part of investing in equity markets and creates opportunity, especially when companies are reporting strong earnings and beating analyst estimates across the board.

The vast majority of our portfolio companies have beat analyst estimates with highlights this week from Amazon, Google, Microsoft, and United Parcel Service that continues to report strong double-digit growth rates. Their weekly performance did not reflect their results as selling in markets took over which is why we look forward to using this weakness to adding to our strongest companies while buying others that have shown impressive growth through the pandemic that are expected to continue. For these reasons, we are optimistic for the upcoming year once certainty and confidence return to markets.

Chart of the Week

As we approach the US Election next week, we wanted to share an interesting chart of the average performance of the US stock market through presidential cycles based upon the change in leadership:

One can see that the strongest scenarios are under a Democrat president, especially if this transition comes from a Republican president. We believe this to be true today as analysts expect a larger stimulus package, stronger trade relations, and an infrastructure bill that could support a quicker economic recovery. We expect corporate taxes to increase but for these benefits to outweigh the costs of higher taxes as taxes would fund many of these relief efforts.

Beyond the Markets

There are no shortage of spooktacular events happening this weekend in celebration of Halloween! If you are in the mood for a movie you can head on over to your local Cineplex for a $5 movie and a free M&M’s mini. The theatres will be featuring films such as Hocus Pocus, The Addams Family, and Beetlejuice! Or if you want to take your loved ones trick-or-treating in a safe and fun way, drive up to the PNE’s Drive-Thru Tricks & Treats event where you can experience spooky characters and Halloween décor, all from the comfort of your car!

Happy Halloween!

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.