An update from Elinesky Schuett Private Wealth Management

Mar 17, 2020 | Elinesky Schuett Private Wealth Management


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We are here for you

Over the past couple of weeks, we have witnessed significant volatility in the markets that is directly related to the COVID-19 virus and the impact of the oil price wars. It may be difficult to focus on the outlook for financial markets when the welfare of our clients, family, and friends is top of mind. Nevertheless, putting events that affect the markets into perspective is an important responsibility of ours – in good times and bad. As a result, we wanted to share our key thoughts on the current situation and how we intend to approach the days, weeks and months to come.

We are here for you

At Elinesky Schuett Private Wealth Management of RBC Wealth Management, the health and safety of our clients and employees is our top priority. We are a team of 12 dedicated advisors and associates that are here to answer any question you have, to watch your portfolio, and to update financial plans and respond to your day-to-day wealth management needs.

In light of the ever-changing measures being introduced to slow the spread of COVID-19, all upcoming appointments will take place over the phone rather than in-person so that we can do our part to adopt social distancing. Our team will continue to be available via phone and email to assist you with your day-to-day needs. If you need to reach us, please phone 519-822-2024 or email elineskyschuett@rbc.com. Thank you for your understanding and assistance with this precautionary measure.

Volatility

We are currently experiencing some of the sharpest moves – both up and down – in stock prices that we have witnessed in some time. It feels particularly extreme because of where we just came from. It has only been a year or so since we left behind a decade of unusual calm in the markets. The emergence of a pandemic has been the unforeseen catalyst that has driven this bout of heightened volatility. This has been exacerbated by a combination of the velocity of news (particularly via social media), fear and panic, illiquidity in the bond market, and the broad adoption of technology-driven trading.

During times of volatility and the heightened media coverage, it is important to keep perspective. We know that:

  • Markets rebound after financial shocks such as we’ve seen over the past week. After major declines in 1929, 1973/74, 1987, 2001-2002, and 2008-2009, stock markets recovered and then climbed to new highs. In North America, historically stock market declines have always been followed by stock market gains
  • Staying the course is always the best course of action. We focus on high-quality dividend stocks and bonds to build our client portfolios – they are not weighted in ‘trendy’ investments or those that do not show a history of resiliency. As such, we do not expect your portfolio to have the same level of volatility as the overall market. We have structured our portfolios to provide the liquidity necessary for your ongoing cash flow needs.

Coronavirus

The spread of the coronavirus is the key issue. What has become apparent is that the only proven way to slow infection rates is through social isolation and quarantine. It’s been successful in China, South Korea to some extent, and are awaiting results in Italy, which has recently undertaken similar action. We are now witnessing the results of the measures undertaken by China to slow the spread of the virus – the measures are working, the spread of the virus is slowing, and we are starting to see early economic recovery as life returns to normal.

Elsewhere, more needs to be done and we expect to see other countries to move towards increased social isolation and quarantine in the days and weeks to come. Ultimately, governments will have to sacrifice their economies in the short-term to some extent for the sake of society’s welfare.

Energy

Another factor has been the rapid decline in oil prices as a result of a standoff between two of the world’s largest oil producers: Saudi Arabia and Russia. While it’s hard to predict an outcome given its political nature, we expect this particular rift could last for a period of months, if not longer. But low oil prices hurt both countries and there is likely some pain threshold, measured in months, at which point negotiations may renew. The implications are important for Canada as any extended period of low oil prices will hurt our economy and our market, both of which depend on the industry.

Governments and central banks

Over the past few days, we’ve seen more from governments around the world. We’ve seen our government take actions to meaningfully contain the virus and slow its spread, largely via social isolation and mandated closure of events and even businesses. Along with this, we’ve heard that governments are working on plans to help businesses and consumers through this period where they may face lost revenue and cash flow. These were similar tactics used in China and more recently in Italy and are being met with some early success. Meanwhile, central banks have already lowered interest rates and, more importantly, taken action to ensure that businesses have proper access to credit should they need to borrow money. Although we have seen action from governments, we are looking forward to additional initiatives that will continue to slow the spread of the virus and stabilize the economy.

Implications

The implications for economic growth over the next few months are negative. But the degree of the fall in stocks in recent weeks suggests markets were likely reflecting an already-heightened probability of economic recession. The important question now is whether the coming measures taken by governments and central banks are meaningful enough to convince investors that the impact will be a matter of a few months and a mild recession versus something that extends well into the second half of the year and is deeper in nature.

In the near-term, we expect these large swings in prices to continue. In our experience, basing investment decisions on extreme scenarios and trying to make large portfolio shifts in today’s environment of big price swings is very challenging. It may be too short-term focused and may do more harm than good given the possibility of government intervention, the ongoing research currently underway to develop a potential a vaccine, or other containment or transmission reduction measures that may be put in place. Past experience reminds us that market declines often end in a climactic fashion. But no one has the ability to accurately predict exactly when that will be.

Rather, we are committed to remain disciplined in our investment approach. This means: focusing on your long-term objectives and ensuring your portfolio is properly structured to deliver your required long-term outcomes. To accomplish this, a few measures we may undertake in the future include:

  • Rebalancing of investment holdings across your portfolio.
  • Harvesting tax losses where appropriate to help you recover taxes previously paid
  • Undertaking constant due diligence and reviewing all holdings to ensure quality.
  • Opportunistically adding to existing or new investment positions that meet our criteria should the prices become excessively cheap.

We believe these measures will help us ensure we continue to have the most conviction in your portfolio and its ability to help you achieve your objectives, both in the short-term and over time.

As always, we will remain vigilant and are available to answer any questions that you may have. Please do not hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.

 

Jay Elinesky

Vice-President, Portfolio Manager

 

Tom Schuett

Vice-President, Portfolio Manager

 

Karie Huisman

Associate Investment Advisor

 

Jennifer Goody-Brown

Associate Investment Advisor

 

Elinesky Schuett Private Wealth Management | RBC Wealth Management | RBC Dominion Securities Inc. | T. 519-822-2024 I T. 1-844-369-1269 | F. 519-822-1982 | 42 Wyndham Street North, 3rd Floor, Guelph, Ontario N1H 4E6 | www.elineskyschuett.com | Facebook