Investment Update
Since our update a week ago we continue to monitor the daily information on what is happening with the Coronavirus (Covid-19) and the investment markets. We wrapped up the latest round of information gathering with a conference call with IA Wealth’s Chief Economist, Clement Gignac this morning. Here are some key points to share with you at this time:
If what China is reporting is true, new cases of Covid-19 have stabilized in China and the work force is gradually getting back to work. As you know the virus began in China and as such, they are the first country to see progress at containing and recovering from the virus.
The virus is spreading in other countries – those countries are all significantly ramping up their efforts to contain the virus. Both Canada, the US and Britain have announced large stimulus measures to support the health industry to contain the virus.
The markets will stabilize when the future becomes clearer with actual data. At this point we are not sure if we will officially go into a recession (which is two consecutive quarters of negative growth) or if we will narrowly avoid a recession. When there is uncertainty, without data, the stock markets are uneasy, and it is very normal to see the large daily swings as data (good or bad) becomes available.
To further complicate things – Russia and Saudi Arabia are in an oil price war, with Russia wanting to keep the price of oil low to do damage to the US oil industry. On the negative side, this can have a significant impact on Canada as oil exports are a large part of our economy. On the positive side – low gas prices help to stimulate the economy for individuals and companies who spend a lot on fuel cost (you can see this reflected in the price of gas at the pumps). As usual numerous economic factors are intertwined and interdependent on each other. Also, on the positive side Saudi Arabi and Russia are talking and negotiating a solution as the low oil prices will hurt Russia in the short-term.
As usual, the fund management teams are re-aligning their portfolios to the current conditions and taking advantage with their cash to find buying opportunities where they see fit. There are certain industry sectors that do better than others during an economic slow down period.
Another factor causing volatility is the US election process. Who becomes the Democratic Nominee to run against President Trump in the fall US election will drive different market expectations.
We have reviewed many of our clients’ portfolios to compare performance to the actual stock indices. In most of those instances our client portfolios are down less than half of the overall stock markets. We are expecting the volatility to be around for several weeks until the economic data becomes clear.
Volatility & market corrections are an inherent component of investing, and that can make many investors uneasy. People are fond of saying that it is ‘different this time’ – the reality is it is not different this time, only the trigger causing this slow down is different. In the last quarter of 2018, we had a
correction in the stock market that was caused by a perceived China economic slow down, US/China trade dispute as well as rising interest rates. Those were the triggers that caused the 20% drop in the stock markets at that time. Those issues were addressed, and we ended up with a significant investment market rebound in 2019.
We have Covid-19 and an oil war triggering a slow down this time and we are unsure how far it will go. Measures are being implemented to correct those problems and eventually the economy will recover and come out of this economic cycle. As in the past we don’t panic and make rash decisions in the middle of a volatile period. We wait for things to bounce back and then examine how your specific portfolio reacted during that time period. If necessary, we make changes at that point in time to prepare for the next downturn.
In this current market environment, we would like to share with you a well written article from one of our partners, Franklin Templeton instead of re-inventing the wheel. Please click on the link below:
As we always say, market volatility is part of a long-term investment plan; however, should you have any specific questions about your personal portfolio please call us.