Shorer Wealth Management Weekly Update: 07/10/2020

July 10, 2020 | Kelly Shorer


Share

This week we saw fairly stable market activity as economic data showed further improvement despite the ongoing rise in global coronavirus cases, and Canada came forward with an update on how the pandemic has impacted the country’s fiscal situation.

The number of coronavirus new cases across Canada continued to be generally stable or falling as reopening measures were launched or expanded. All provinces and territories seem focused on continued monitoring and appear to be taking a cautious stance towards adopting the phases they’ve outlined to return to fully-operational economies.

The recent surge in the U.S. comes as many states remain focused on keeping their local economies open. As the healthcare system becomes strained in certain regions, we expect local officials may need to balance reopening strategies with public health priorities and trying to contain many of these new outbreaks while preventing others.

Bill Morneau, Canada’s Minister of Finance, presented a fiscal and economic snapshot of Canada on Wednesday, sharing that the estimated federal deficit for 2020-2021 will be a staggering $343.2 billion. This marks a sharp deterioration from last December’s expectation of a $28.1 billion deficit. The announced deficit is driven by many factors. Stimulus is a key contributor, with total announced stimulus spending for 2020 totaling nearly $230 billion. Lower revenues and higher expenses are also meaningful contributors, both brought on by the economic disruption from COVID-19.

Despite worrisome trends in the pandemic’s resurgence in the U.S. and elsewhere in the world, economic data releases this week continue to point towards recovering activity. The improving tone to the economic data, together with cautious optimism surrounding the progress of developing a vaccine, remain key pillars supporting the “risk on” sentiment in financial markets. While markets have exhibited resilience in recent weeks, we remain conscious of several risks that could keep volatility elevated in the months ahead.

The COVID crisis has delivered a bigger shock to our economy than most expected. Ottawa is forecasting an enormous $343 billion deficit in 2020, which pushes the federal debt load past the $1 trillion mark for the first time. With the worst behind us, the focus now is how to sustain the early economic recovery and especially, how to get Canadians back to work. Can Canada take on more debt without further risking our sovereign credit rating? And how will the federal government transition people from the CERB relief program to more productive wage subsidies or other schemes? This past week, Craig Wright, RBC’s Chief Economist, shared his take on Canada’s fiscal snapshot in this “10-Minute Take”.

We have been getting a lot of questions about how governments around the world are going to pay for the stimulus and many fear we will see higher personal income tax rates and increased consumption tax (HST).  Canada already has higher income taxes compared to the US.  A Fraser Institute study suggests that Canada must cut income tax to remain competitive. Although this is counter to what many tax professionals and individuals we speak to believe will happen, it is an interesting take on a different approach.

With the current economic climate it is always important to continuously re-evaluate the current opportunities as well as what to avoid. Below is a quick snapshot that highlights some of the current things we are looking at.

Source: RBC DS Portfolio Advisory Group, June 18 2020

Today’s tip is on the importance to remain active during the pandemic. Remaining physically active during the pandemic can improve both your physical and mental health. No gym, no problem! Here are some tips on how to remain active even while at home.

Have a good weekend and drink lots of water to fight off this heat!