The coronavirus continues to spread. While Europe continues to grapple with a growing number of cases, the U.S. is seeing its case load rise faster, particularly in certain jurisdictions like the state of New York. It has now surpassed China in terms of largest confirmed case count. Governments around the globe have escalated their containment efforts over the past week and it will take at least a few weeks, if not longer, to gauge whether these actions are effective. Meanwhile, measures out of Italy, which has been on lockdown for about two weeks, have yet to offer conclusive signs that infection rates in that country are starting to slow.
Governments have stepped up their efforts considerably over the past week in order to help offset the hit to their economies. More specifically, many governments around the world have announced significant measures aimed at helping the unemployed, as well as businesses, deal with a period of cash flow shortfalls. Meanwhile, central banks have leaned on lower interest rates but more importantly have adopted policies to ensure strong liquidity and proper access to credit for businesses, large and small.
Investors will need to prepare themselves for economic data that will deteriorate markedly in the weeks and months to come. Indeed, this has already started to happen. In Canada, for instance, unemployment insurance claims have already risen to nearly one million over the past week, representing nearly 5% of all employees in the country. Meanwhile, in the U.S., jobless claims rose to 3.28 million this past week, a significant jump from the 281,000 claims filed the week before. Interestingly, the equity markets responded well to this seemingly bad news, as they had already fallen meaningfully in the weeks leading up to these data releases, reflecting the increasing odds and anticipation of an economic recession.
The important question remains whether the measures that have been taken – and may yet be taken – by governments and central banks are meaningful enough to limit the economic hit to a period of months and a mild recession versus something that is deeper and longer.
We continue to expect volatility to remain elevated in the near term until clarity emerges on the potential containment of the coronavirus. Nevertheless, we remain disciplined in our long-term investment approach and continue to have confidence in your portfolio.
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