Our thoughts on the market volatility - March 25

Mar 25, 2020 | The Simbul-Lezon Wealth Management Group


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While it may not feel like much has changed over the past week - markets remain volatile, coronavirus continues to spread and oil prices are still falling - there have been some notable developments of late.

We continue to think about the welfare of our clients, family and friends during this challenging time. Concurrently, we are thinking of our clients’ investment portfolios and are monitoring developments with respect to the spread of the coronavirus, government responses, and implications for economic growth and the markets.

We continue to expect large swings in prices to continue in the near term until clarity emerges on the potential containment of the coronavirus. We remain disciplined in our investment approach and continue to have conviction in your portfolio and its ability to help you achieve your objectives over time.

Coronavirus

The coronavirus continues to spread with Europe now at the epicenter. Meanwhile, the number of cases in North America is growing. However, what has changed is that many countries have escalated their containment efforts, recognizing the threat as being significant. It will take at least a few weeks, if not longer, to gauge whether these actions are enough to slow the rate of infection. But we believe that containment efforts and change in behaviour can slow its spread, particularly given the success seen in China and South Korea. We also are closely monitoring Italy and hope to see slowing infection rates as early as next week given the virtual lockdown the country implemented more than a week ago.

Governments and central banks

Governments and central banks have stepped up their efforts considerably in recent days in order to help offset the hit that consumers, households and businesses will face as they deal with containment measures that are under way. While meaningful fiscal action was perceived to be lacking less than a week ago, many governments around the world have announced (or appear to be on the verge of announcing) significant measures this week. These have ranged from emergency loans, to tax relief, to direct payments (among other measures). Meanwhile, central banks have aggressively lowered interest rates but more importantly initiated a variety of policies, some of which have been globally coordinated, to improve liquidity conditions and ensure that businesses have proper access to credit should they need to borrow money.

Implications

Investors will need to prepare themselves for economic data that will deteriorate markedly in the weeks and months to come. One needs to only look to China to appreciate the severity of the weakness – readings for industrial production and retail sales fell substantially during its period of lockdown. Fortunately, those Chinese indicators should improve to some extent going forward. But the degree of the fall in stock and corporate bond markets suggests markets are already reflecting high odds of a recession in North America and Europe. The important question remains whether the measures that have been taken – and may yet be taken – by governments and central banks are meaningful enough to limit the economic hit to a period of months and a mild recession versus something that is deeper and longer.

We continue to expect large swings in prices to continue in the near term until clarity emerges on the potential containment of the coronavirus. We remain disciplined in our investment approach and continue to have conviction in your portfolio and its ability to help you achieve your objectives over time.

Should you have any questions or concerns, please feel free to reach out.


Your investment team

Marita Simbul-Lezon
marita.simbul-lezon@rbc.com
905-738-3244
Mary Rose Simbul
maryrose.simbul@rbc.com
905-738-3255
George Tsolakidis
george.tsolakidis@rbc.com
905-764-4846
Scott Donovan
scott.donovan@rbc.com
905-764-3283