Market Update - July 31, 2020

Jul 31, 2020 | Tom McGill


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Markets made little headway over the past week, finishing roughly where they started. It was a week that served to remind investors that improvements may be met with setbacks, both with respect to the coronavirus and the economic recovery.

 

Coronavirus update

Seemingly, there was a reversal of fortunes this week with respect to global coronavirus trends. The U.S. experienced some stability in contrast to the rest of the world which has been faced with a resurgence.

 

Positively, the U.S. witnessed stable to modestly lower rates of new infections in some of its most populated states, including California. Notably, some states across the Midwest appear to be experiencing rising cases, though the levels are not alarming at this point. Overall, the average number of new daily cases across the country remains elevated at well over 60,000, but this level has not increased for the second week in a row. Unfortunately, the number of fatalities has been rising. While tragic, this is not surprising as deaths lag new infections. Encouragingly, the mortality rate remains well below the levels witnessed in the country months ago, despite infections being meaningfully higher.

 

Developments were less encouraging throughout the rest of the world. Elevated new cases remain a challenge across India, parts of Central and South America, South Africa, and Southeast Asia. But this week was noteworthy for the increasing number of countries that appear to be experiencing relatively new outbreaks. The list includes Australia, Japan, China, Hong Kong, Vietnam, Belgium, Poland, France, Germany, and Spain among others.

 

Company earnings and economic wobbles

  1. second quarter earnings season is roughly half way complete. Thus far, results from companies in Canada, the U.S., and Europe have been in-line to slightly better than expectations on average, helping reassure investors to some extent. The large and growing technology sector has garnered a lot of attention and focus, and deservedly so, as results confirmed what many investors already understood – these companies’ business models are well positioned to deal with an environment that remains far from normal. Yet, revenue and profits from companies across a range of industries also followed the positive trend of being as good as or better than investor expectations. Apple’s results are worth highlighting as the company reported third quarter earnings-per-share (EPS) ahead of consensus. The results came on the back of increased revenues on iPhone, iPad, Mac and Wearable sales. The app store continue to remain under scrutiny as Tim Cook, Apple’s CEO, faced questions from Congress this week regarding questionable monetization practices - for now, we do not see imminent risk to the economics of this side of the business. Further to the earnings beat, the company approved a 4:1 share price split and trading will begin on a split-adjusted basis Aug 31/20.

 

Similar to Apple and other large tech peers, GOOG continues to face multiple anti-trust investigations which will serve as a mitigating factor to the story. We are still constructive on GOOG’s attractive long-term prospects addressing verticals in secular growth markets such as online streaming, cloud, autonomous vehicles, video conferencing and robotic surgery – not to mention the ~$18B of cash on the balance sheet.

 

Despite the positive narrative, significant challenges persist. Many management teams suggested visibility remains limited and difficulties still lie ahead once government aid programs expire. Furthermore, many entrepreneurs with small and medium sized businesses are struggling with restrictions imposed by governments and overall weak demand. Additionally, many don’t get to benefit from the kind of financial flexibility and workforce agility of some public companies. Furthermore, there continue to be signs that suggest the positive economic momentum is wobbling, particularly in the U.S. The number of people filing weekly jobless claims, which had been improving (i.e. declining) for many weeks, has stalled and begun to reverse course over the past two weeks.

 

Pressure continues to mount on the U.S. government to come up with another round of stimulus. But finding some compromise is clearly proving to be more challenging than expected. Nevertheless, we continue to believe some resolution will surface in the not too distant future.

 

  1. if you are craving a change of scenery but are staying close to home this weekend, here is a list of walking trails within the city of Calgary. I tried the Douglas Fir Trail last weekend and received a little taste of nature within our beautiful city.

 

Please let Shannon, Tom, and myself know if there is anything we can ever assist you with as our entire team stands ready to listen and speak with you. We can also be made available to speak with any family and friends who may require assistance at this time.

 

Have a great long-weekend!

 

Devin