Global equity markets crept higher this week despite the lack of progress on a U.S. stimulus package. This week, we address the dichotomy that has emerged on the virus front between the U.S. and much of the rest of the world. We also discuss the implications of the upcoming U.S. elections now that Senator Kamala Harris has been announced as the running mate alongside Joe Biden on the Democratic ticket. We conclude with some reflections on the market’s resilience of late.
The U.S. has seen its number of new daily infections slow, particularly in states like Florida and Texas. Hospitalization admissions have followed suit and alleviated the pressure on the health care system. To be clear, the figure remains elevated, averaging more than 50,000 new cases daily. And there are states seeing increases. But, the national trend is heading in the right direction – lower - and suggests containment measures are working.
The U.S. elections are now just a few months away and the rhetoric will undoubtedly pick up sharply in the weeks to come. This week, Democratic presidential nominee Joe Biden announced that California Senator Kamala Harris will be his running mate. Vice President picks rarely influence election outcomes. While there may be some incremental impacts at the margin from this week’s news, we don’t expect it to shift the narrative much.
With respect to election outcomes, we see three plausible scenarios: 1) status quo; 2) Joe Biden as President while the House and Senate stay unchanged; and 3) sweeping victory for the Democrats (President, Senate, and House). This latter scenario may pose the most uncertainty for the market as it could increase the odds of higher taxes and more restrictive regulation in the future among other things. I also read an excellent article from Capital Group on the election and what the different outcomes mean for investors. Within the article they also look at the 10-year historical data of $10,000 invested during an election year, and the outcomes were quite interesting. Nevertheless, we think the elections are unlikely to alter the course of fiscal policy in the intermediate term as both Democrats and Republicans are incentivized to help their constituencies through this period of economic malaise. Furthermore, accommodative monetary policy, which has helped ignite the economic and market recovery is unlikely to change any time soon regardless of election results.
Many investors remain concerned about the current backdrop. After all, we remain in the midst of a global pandemic, with an economy that is recovering after a multi-month period of forced shut down. Much uncertainty remains. Nevertheless, global markets have been resilient in recent months. The widely followed S&P 500, an index representing the U.S. equity market, is higher today than it was at the beginning of the year. Elsewhere, markets continue to claw back much of their losses, though they still remain below breakeven on the year.
We have been impressed with the recovery, but remain vigilant given the elevated level of uncertainty. As always, we don’t know what will transpire in the weeks and months to come but will remain focused on ensuring that our investment plan can deliver the required outcomes of our clients.
Another article I found interesting this week looks at Brookfield Asset Management Inc, a highly respected manager of capital, and how they have raised $23 billion during the second quarter of 2020 with the strategy of accelerating their investment under the belief that the worst is now behind us.
This weeks “10-minute take” seeks to answer questions surrounding the Canadian housing market. Across Canada, the housing market rebounded as pent-up demand pumped up sales volumes and prices in June and July. Montreal, for example, set a new record – 46% jump in year-over-year sales. The pandemic has also shifted preferences, as more homebuyers venture to the suburbs in favour of space and greenery (putting a damper on the previously-hot urban condo market). Will we see this activity extend into the fall? And has COVID created a fundamental change in buying behaviour? RBC Senior Economist Robert Hogue shares his outlook on the housing market.
Not sure how to approach being in confided spaces during the pandemic? Want ideas on how to be cautious and respectful of other people’s health while in public? This week’s tip comes from a public health expert at Harvard with suggestions on how to behave in an elevator.
Enjoy the nice weather and have a good weekend!