MAy 2020 Insights and Updates Newsletter
Good Morning Friends,
Spring is finally here, although its hard to appreciate while we are attempting to remain isolated and work from home. May is normally one of my favourite months. The grass is turning green, flowers are starting to blossom, and the first rains wash away the grime leftover from the winter. May 2020 will be memorable for many reasons. The price of oil and the economic effects of COVID 19 being two of the most obvious. Numerous provincial governments across Canada are announcing plans to “reopen” their economies in phases and with many countries around the world doing the same hopefully we can start moving forward again and begin the long road to “normal”.
Last Month in the Markets – April 1st – 30th, 2020
Despite a one-day drop at its conclusion, April was one of the most successful on record for equity indices in North America. Each of the local major indices rose more than 10%, as did the All Country World Index (ACWI) representing both developed and developing markets around the world.
Unfortunately, April followed its polar opposite. March. Technology stocks that power the NASDAQ index have regained their losses and have added nearly 10% to their value over the past year. The more balanced S&P 500, TSX and Dow indices will require much more of the April-like performance to reach the enviable position of the NASDAQ.
(source: ARG analysis and Bloomberg https://www.blomberg.com/markets )
The price of oil remains an issue for investors in Canada. Demand has fallen significantly, while supply has not matched demand’s decline. The oversupply and resultant worries regarding storage capacity had May oil futures for West Texas Intermediate (WTI) drop well into negative territory. The energy sector is the second largest component of the TSX, behind financials, and the sinking price of oil hovering at or below $20/barrel causes significant damage to the industry. Investment in exploration and development becomes dubious and company profitability, a major driver of share price, becomes increasingly difficult as revenues drop. https://www.nytimes.com/2020/04/21/upshot/negative-oil-price.html
Improving statistics for the coronavirus pandemic provided an undercurrent for equities as companies and governments announce and enact plans to re-start their economies. Several U.S. states have plans to re-open their economies, and several more have experienced protests by those who feel the timetable and breadth of the plans are not aggressive enough. https://www.theglobeandmail.com/world/article-italy-reveals-cautious-reopening-schedule-as deaths and new/
What’s ahead for May and beyond?
The coronavirus will continue to dominate the news, financial markets and people’s lives for the foreseeable future. The single most important accomplishment leading to an economic recovery is ending the pandemic.
Restrictions on Canadians are being lifted. It will be a slow process that will attempt to deliver economic benefits while mitigating personal and public health issues. https://www.cbc.ca/en/department-finance/economic-response-plan.html
Canada’s Covid-19 Economic Recovery Plan (CERP) with descriptions and details and applications can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html
The webpage above is the gateway to programs and is constantly updated. Most important for you and your family members, the links and instructions to apply for the benefits can be found at this location.
In Central banking news, the successor to Bank of Canada Governor, Stephen Poloz, has been announced. Tiff Macklem, former Deputy Governor and current Dean of the Rotman School of Management, will officially assume the responsibility for Canadian monetary policy on June 3rd. https://www.theglobeandmail.com/business/article-who-is-tiff-macklem-the new-bank-of-canada-governor/
As November and the U.S. election approaches, expect the White House to make multiple attempts to shift blame for the domestic spread of the coronavirus. The U.S. has blamed the World Health Organisation (WHO) of being too close and forgiving of China and has stopped funding pending an investigation. Most recently, Secretary of State, Mike Pompeo, has stated the virus originated in a Wuhan lab, and has refused to release any evidence to support this accusation. Investors should take notice because this escalating rhetoric will pit the leadership of these two economies against one another. The trade treaties that were agreed in late 2019 could be put at-risk if the animosity escalates. Open trade between the U.S. and China will contribute significantly to any post-Covid recovery. https://www.theglobeandmail/world/article-mike-pompeo-links-coronavirus-to-wuhan-lab-despite-intelligence/
The markets in March and April were a rollercoaster to say the least. We won’t know the extent of the economic damage COVID 19 has caused for months. There has been an unprecedented amount of economic chaos and we are still clouded with uncertainty.
I prefer to look at the market sell off as an opportunity. As Loxley clients, a percentage of your portfolio was in private securities which typically do not react to market sentiment in the same way as public securities. You were also advised that a market correction was due, so many of you were not caught completely off guard. Most of us, my self included, took some losses over the last 2 months but the markets will recover, they always do. Some of us were fortunate to have some “dry powder” available. This gave us the opportunity to invest as the market overcorrected and hit extreme lows which should provide significant gains as the world slowly starts to function again. I would advise being patient, it will be some time before we are back at pre-pandemic employment and utilization levels, but we will get there.
We have some exciting new investment opportunities that will launch when the timing is right, taking into consideration the health of the economy and the progress in the fight against Covid-19. I think launching new offerings in the current environment would be pretty tone deaf. As western Canada starts to open the economy back up in May and people are feeling less anxious about their health and finances, we’ll launch our new offerings. As always, if you have any questions or even if you just want to chat, I’m always available. Take care and stay well.