Economic recovery continues despite slowing momentum

Sep 04, 2020 | Elinesky Schuett Private Wealth Management


This week’s economic update features a theme of moderating momentum, with commentary focusing on the recent movements in the market, a virus update, and our views on the economic recovery.

Man writing in a notebook at a desk.

This week’s economic update features a theme of moderating momentum, with commentary focusing on the recent movements in the market, a virus update, and our views on the economic recovery.  We have also included a new 10-Minute Take, along with your RSVP reminder for our upcoming online event featuring Jim Allworth.

Global equity markets experienced some weakness this week, though the decline was sparked by no obvious catalyst. The week was also highlighted by a combination of hope on the vaccine front and global economic data for the month of August that suggests that the recovery is continuing, albeit at a pace that has moderated. We share our thoughts below.

Market decline

The selloff that occurred was notable because it was accompanied by a meaningful jump in volatility, though levels remain well below the extremes seen earlier this year. Furthermore, the selloff was led in particular by the so-called “growth” stocks that have been responsible for leading the global markets higher in recent months. However, the ingredients for this week’s decline may have started to come together weeks ago as there was growing evidence that fewer stocks were achieving new highs despite the market itself moving higher. This is often regarded as a lack of “breadth”, which can sometimes foreshadow future weakness.

Coronavirus update

COVID-19 trends remained largely the same over the past week. More specifically, the number of new cases in the U.S. continues to grind lower. Other jurisdictions are also seeing progress in the form of relatively stable numbers, namely Australia, the African continent, and Russia. Elsewhere, some are grappling with high or accelerating new cases, such as India, Spain, and France. From the market’s perspective, these trends are not surprising, and it may view the lower fatality rates in recent months and the measured approaches that governments have taken as a sign that economies can function and even recover while the virus is out there.

Hope remains on the vaccine front. This week, it was revealed that the U.S. Center for Disease Control and Prevention reached out to all states to ensure they are ready to distribute a vaccine as early as November, should one be ready. It remains unclear as to if and when a vaccine will be approved, but the gesture alone understandably ignited a dose of optimism.

Economic recovery continues despite slowing momentum

On the economic front, there was much to digest this week. The global services sector, which includes businesses in areas like hospitality and leisure for example, was hit particularly hard this year given the nature of the health crisis. The data for the month of August across Europe, Asia, and North America, suggested that this part of the global economy is continuing to recover, although the pace has moderated. This slowing may be a function of a normal levelling off following a strong initial rebound in recent months. The slowing could also be a result of something more worrying, such as renewed concern on the part of consumers or the localized lockdowns in certain areas that have faced a resurgence of the virus.

Employment figures across North America suggest a similar trend of ongoing recovery but moderating momentum. Canada and the U.S. both saw another month of employment gains in August. Inevitably, some investors will focus on the fact that nearly half of the jobs lost across North America during the peak of the pandemic have now been recouped. To be precise, more than half of the jobs lost have been regained in Canada. Others are likely to emphasize the fact that millions of people still remain unemployed and are depending heavily on government programs. We think it’s important to recognize that meaningful challenges remain, but to also understand that we are in a period of healing and recovery that will take time.

This week marked the beginning of September. We will be turning our focus to the fall season and the issues that could have important consequences for the economic and investment outlook. Meanwhile, the widely used Canadian Emergency Response Benefit (CERB) transitions to new and more permanent programs at the end of the month. A throne speech from Prime Minster Justin Trudeau, also later this month, may prompt a confidence vote and offer an opportunity for opposition parties to respond. Lastly, the U.S. elections take place in less than two months and will undoubtedly garner much investor attention in the weeks to come

10-Minute Take

The 10-Minute Take is a podcast series dedicated to providing insights from RBC Economists and market experts on events unfolding around the globe.

How the U.S. Fed’s landmark policy shift goes beyond inflation

Wyoming’s state motto, “Equal Rights,” might have hinted at the U.S. Fed’s new monetary policy strategy that was revealed at this year’s (virtual) Jackson Hole Economic Symposium. Chairman Jerome Powell announced changes emphasizing the importance of both inflation and labour within its mandate. But what are the risks of shifting from an inflation target of 2% to an average of 2% over time? And how will a renewed focus on employment affect interest rates and growth into 2021? Tom Porcelli, RBC Capital Markets’ Chief U.S. Economist, shares his take on how the Fed’s new approach could play out in markets and the economy.

Listen to the latest 10-Minute Take podcasts online now: The 10-Minute Take.

Elinesky Schuett Speaker Series
Where do we go from here? In conversation with Jim Allworth

September 16, 2020     1:00 p.m. - 2:00 p.m.

We hope that you can join us for the next online event in the Elinesky Schuett Speaker Series: Where do we go from here? In conversation with Jim Allworth. Jim will speak on the outlook for the global and Canadian economies and financial markets.

Guest speaker: Jim Allworth, Portfolio Strategist, RBC Dominion Securities

Kindly RSVP by September 14 by clicking on the button below.

A link to the event website will be provided
with your registration confirmation.


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Happy Labour Day!

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Community Corner

Each week, we like to end our posts with a few good news stories from in and around the community. We hope that they brighten your day!

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