Global equity markets experienced some jitteriness over the past week, following through on some of the weakness that began the week before. We provide a bit more colour on the recent action and address the growing importance of the technology sector. We also provide an update on the coronavirus front, with particular attention paid to the rising trend of cases in various parts of the world, including Canada, and a setback on one of the vaccines being explored in a late stage trial.

While investors are not as concerned as they once were, the virus continues to spread throughout the world. Canada has seen its average new daily case levels trend higher in recent weeks, indicating that the rate of spread is now rising after a period of stagnation. While the figures remain well below the levels seen during the first wave, it bears monitoring, particularly in light of the back to school and fall seasons, where indoor gatherings will become more prevalent.

Despite the ongoing pandemic, investors remain less concerned than they were earlier this year. The rationale is based on the view that fatality rates are lower and governments are likely to employ more localized containment approaches instead of the full scale lockdowns seen across much of the world months ago. Furthermore, hope for a vaccine remains relatively high. On this front, some disappointing news over the past week should serve to remind investors that developing a vaccine that is safe and effective is a difficult task and is by no means guaranteed. A late-stage vaccine trial was temporarily suspended for safety reasons after one participant developed a neurological condition. The case is being investigated further. These kinds of suspensions are not uncommon in clinical trials, and the trial itself may continue at some point.

Markets sold off over the past week, continuing a trend that started just over a week ago. Notably, the level of volatility this past week did not increase but remained relatively flat, suggesting investor anxiety has not deteriorated and the action remains reasonable and relatively normal. The market decline is being led by higher growth stocks, many of whom happen to be tied to technology products or services in one way or another. Many of these stocks have led the market higher since the lows in March, and so it’s not a real surprise to see investors taking some profits at this juncture.

In our view, what is more interesting, and worth appreciating, is how meaningful the technology sector has become. About five years ago, the sector represented a measly 2% weight in the Canadian equity market and a much more substantial 20% weight in the U.S. Today, those weights are nearly 10% and just under 30%, respectively. These numbers are even higher if you factor in stocks that are classified as being in other sectors but are very much technology oriented.

The level of concentration is not necessarily uncommon. In Canada, the Financials, Energy, Materials, and Technology sectors have all accounted for a much higher weight in the market at one point in history. In the U.S., some of these same sectors in addition to Healthcare have also been significant weights in the market, albeit not as high as technology is today. Furthermore, the level of concentration tied to a few stocks or sectors is actually higher in other parts of the world like South Korea, India, Germany, France, Italy, and Australia for example. Nonetheless, there’s no denying the fact that technology and related areas have grown in their significance and are now a much more important driver of equity market returns and risk in North America and beyond.

Our investment approach remains focused on ensuring the proper level of risk is being taken over time to deliver on our clients’ required outcomes. This level of risk is unique to each client, and may also be quite different than the stock market itself. And unlike the broader market, we have the ability to actively manage our client portfolios to ensure that appropriate exposure across asset classes and sectors is being maintained in our portfolios at all times.

RBC Economics has put out an interesting article on how the economic conditions have improved, however there is still a bumpy road ahead. The below chart illustrates the various economies are expected to grow through the end of 2020, however none are projected to return to the pre-COVID levels of output.

To many observers, last week’s dramatic sell-off of tech stocks was inevitable, especially given how fast they climbed since the March low. But the appeal of tech won’t fade anytime soon. The pandemic set into motion a rethink of how companies will operate in a digital-first world – and what technologies they’ll need to succeed. On the latest “10-Minute-Take” Alex Zukin, RBC Capital Markets’ Software Equity Analyst, shares why there are still tailwinds ahead for tech.

This past week I found an interesting article on “How our universities can go global online”. The pandemic has created a historic crisis for Canadian colleges and universities. It could present a significant opportunity, too. The widespread use of online learning platforms and tools offers educators a chance to reach a global body of students that could far exceed Canada’s current market. The digital export of post-secondary education could attract talent, create high-value jobs and help colleges and universities reimagine themselves in a pandemic-disrupted world.

Businesses across the country are starting to move small portions of their workforce back into the office, however there is still a large number of people who will be stuck at home until 2021. In the new era of video conference calls, here are etiquette tips to keep in mind.

Have a good weekend!