Morning and happy Monday!
An exciting weekend of garage organizing, leaf blowing and Halloween preparation….and we finally made our annual trip over to Strom’s farm yesterday to grab the kids their pumpkins.
It’s always those little annual moments that remind me how quickly time slips by, how fast life changes and, for me, always a reminder of my inability to control change.
We’ve all had someone tell us that “change is the only constant in life” when they are trying to console us from a difficult adjustment that we’re likely trying to navigate. The real point of this statement is that if we don’t embrace change we’ll get caught up in realities that our out of our control to no avail.
With all going on around us in these moments, let’s remind ourselves that our energy is best directed toward actions that can make improvement in our lives and for those around us.
“Our rational nature moves freely forward in its impressions when it:”
- Accepts only what is true
- When we work towards a common good
- Line up your needs and wants with what is in your control
- Embrace what nature has in store for you
Markets
Volatility crept higher last week and are trending that way this morning as global Covid cases and uncertainty on U.S. stimulus negotiations weighed on investor sentiment. In that debate last week, for those that couldn’t stand to watch, we were treated to a more orderly debate between Donald Trump and Joe Biden. The takeaway appears to be that both candidates did well enough, and it may have little impact on the election which is just over a week away. It’s also worth noting that millions of ballots have already been cast.
Coronavirus update
It was a weekend of record breaking figures across the USA, Europe, Italy, Spain, Germany, France, Poland, Croatia, the Netherlands, and the Czech Republic are among many of the countries that reported new daily highs in infections.
Unfortunately, last week was also a record breaking week for Canada as it reported nearly 2800 new daily infections recently. However, the pace at which the virus is spreading has shown signs of moderating. The 7 day moving average now stands at over 2400 new cases per day, just 100 higher than the level from a week ago. And while Quebec and Ontario stand out for their relatively high case numbers, their average figures were stable if not lower over the past week. The East Coast appears to have contained an outbreak that emerged in New Brunswick as its figures moved lower. But, elsewhere, British Columbia, Alberta, Saskatchewan, and Manitoba all saw meaningful acceleration in infections suggesting the pandemic in Canada is now fairly broad and not necessarily isolated to the two largest provinces.
The United States continues to see its situation worsen as well with new daily infections that have surpassed 60,000. As with Canada and Europe, this recent wave is fairly broad-based and not specific to any one region.
We continue to believe these trends increase the likelihood of more restrictive containment policies that could limit the trajectory of the economy and earnings heading into 2021.
Business sentiment weak but improving
The third quarter earnings season is well underway and while still early, the trend has been positive thus far with the degree of the year over year earnings decline coming in meaningfully less than expected.
This “weak but improving” story was echoed by results from the Bank of Canada’s recent quarterly “Business Outlook Survey”, which summarizes the outlooks of business leaders from about a hundred firms across the country. This survey was completed between late August and September. In a nutshell, business sentiment remains negative but has trended positively across all regions in Canada. Nearly two thirds of businesses, linked primarily to household spending, real estate, natural resources, and infrastructure suggested that sales have recovered, are anticipated to recover, have been unaffected, or even increased during this year. The remaining one third of firms either believe that sales are unlikely to rebound or uncertain if they will over the next year. These businesses are generally tied to areas like tourism, leisure, travel, and hospitality. Some other key takeaways included an improvement in credit conditions, modest hiring plans, meaningful supply constraints that may be transitory in nature, and investment plans that are unsurprisingly mixed.
Meanwhile, in the U.S., cautious optimism seemed to be a key theme we gleaned from the Federal Reserve’s Beige Book. The U.S. central bank publishes this document eight times a year and it tracks activity and commentary from a variety of business leaders and professionals over the period of late August through the beginning of October. Similar to Canada, the U.S. economic recovery appears to be advancing on a few separate tracks, with some industries seeing a rebound in growth (manufacturing and banking for example), others dealing with supply issues (auto and housing), and a few that remain under stress (travel and entertainment).
Interestingly, management teams from a number of U.S. banks indicated that the period of building loan loss reserves in anticipation of future credit losses may now be behind them. That’s not to say the challenges facing businesses and households have diminished. Rather, it suggests that banks feel they have adequately prepared for future losses given the billions of dollars they have set aside on their balance sheets. Nevertheless, some of the commentary from U.S. banks does illustrate that the outlook is improving. For example, several management teams implied that the debt deferral story may now be behind us as most customers have exited emergency loan relief programs and are maintaining current payments on their debt. Overall, they felt households were in better shape today than earlier this year, with higher savings and lower debt.
We are encouraged by some of the anecdotal evidence and commentary from businesses across North America that suggest a weak but improving business climate. Our view is that the combination of time, government aid, and innovation on the health care front can continue to nurture a backdrop that eventually helps lead to a broader and more sustainable recovery for businesses and households in the year ahead.
We are confident in our portfolio positioning heading into the election and into November. We remain quite defensively positioned and we ready to become more active as opportunities present themselves into December. Remember, opportunity amid uncertainty and we have been proving this through the year as it’s within our control.
Take Control
Between the pandemic, the economy and the election, these are all things that we cannot control. We can however start the week focusing on what is within our control.
Incredible things can happen if we believe we can take the wheel. Once we realize that we are the “Masters of our fate, the Captains of our souls,” we are emboldened to make and own our choices, to understand the control we have over our future and our outcomes.
“Flow with whatever is happening and let your mind be free. Stay centered by accepting whatever you are doing. This is the ultimate.” Chuang Tzu
Be well & enjoy the moments Derek