A few topics our newsletter touches on this week:

• Our Thoughts:  COVID-19 & the US election
• Dividend Growth: How things have changed in six months
• 10 Minute Take Topics: Tech’s staying power, ESG investing, Throne Speech & Airline futures
• Interesting Reading: Global Insight Monthly, One-Minute Market Update
• Distraction Content: Pandemic Thanksgiving & NHL Draft

Our Thoughts: COVID-19 & the US election

Top headline for September remains of course the COVID-19 pandemic, punctuated this past week with the major news that President Trump has contracted the virus and the possible implications of that news to the ongoing U.S. presidential election campaign.

 

In Canada, the rate of new infections continued its ascent over the past week. The 7 day moving average of new cases is over 1500, close to double the level from a few weeks ago. Quebec and Ontario continue to garner a lot of attention as the absolute case numbers are elevated (averages of over 700 and 500, respectively). But the virus is spreading elsewhere too, with both Manitoba and Alberta seeing an uptick. On a positive economic note, consumer spending in Canada has now almost fully recovered – consumers around the world are looking surprisingly normal, thanks in part to government cheques.

 

In the U.S., the rate of infection growth looks to be turning higher yet again after a period of relative stability. However, there are signs that point to major progress from an economic standpoint for the time being (as future waves of infection will determine how long this lasts). U.S. economic activity has begun advancing again, though it remains below pre-pandemic levels especially in food service and industrial production.

We remain preoccupied with the health risk and the overall threat this resurgence poses to economic activity should governments have to consider more restrictive measures of containment.

There are three likely outcomes to the U.S. election: 1) the status quo, with Donald Trump being re-elected with a divided Congress; 2) Joe Biden winning the Presidency with a divided Congress; and 3) a Democratic sweep, with Joe Biden becoming President and the Democrats taking control of both chambers of Congress. All of which will lead to varying amounts of uncertainty in the eyes of equity markets, with the Biden sweep perhaps being the most significant given the possibility of changes with regards to tax cuts, trade and climate change/renewable energy.

A fourth scenario has emerged of late. It likely presents the highest risk, albeit for a short period. A contested election, whereby a candidate rejects the outcome due to irregularities, close races that will be determined by delayed mail vote counting, or accusations of fraud for example. In the contested 2000 contest, the uncertainty that emerged drove higher volatility between November and December 2000, and equity markets declined as a result. A return to more normal levels occurred by January 2001, at which point a clear outcome was already established. Read more about the possibility of this scenario in the week’s “Insight Weekly” – link in interesting reading section.

It remains difficult to predict the future, but we are prepared for elevated volatility through the end of the year. Besides the U.S. election & the global pandemic, there are other drivers that may arguably be more important for the equity markets. These include the economic cycle, corporate earnings growth, monetary policy and the availability of credit for example.

For a deeper dive on these and other topics, check out the interesting reading & podcast episodes we are highlighting for you below. Feel free to reach out if you would like to discuss these or any other topics and how they relate to your portfolio with us.

Dividend Growth  - How things have changed in six months

We often view dividend growth as a barometer of a board of director’s view on the future.  Here is an illuminating fact: in April 2020 100% of the changes in dividend payments on the TSX were decreases; in September 2020, 100% of the changes to dividend payments were increases.  We continue to believe that dividend growth over the next four quarters will be muted, however we do expect to see some dividend increases in certain sectors. We believe dividend increases will continue to come from the Consumer Staples, Utilities, Industrials, and Energy (pipelines only) sectors. We continue to believe that bank dividends are safe but we may not see any meaningful dividend increases this year or next year.

If the pandemic forces Canadians to go back into a state of emergency, then we believe that payout ratios and balance sheets could be a problem in the Real Estate and Energy sectors (producers and some midstreams) and some companies in the Financials sector.

The 10 Minute Take – RBC Podcast Series *new episodes*

New podcast episodes will get posted regularly to discuss various issues front and center during the COVID-19 crisis. You can jump to a specific episode from the links below, with easy access to past episodes as well.

• Sept 9: How tech has staying power, depite market sell-off
• Sept 16: How the crises of 2020 have focused investors on ESG
• Sept 23: How the Throne Speech can help Canada’s recovery
• Sept 30: Why the airline industry is bracing for more turbulence

Interesting Reading

• One minute market update – Fall 2020, check it out here
• Global Insight Monthly Oct 2020 edition is out soon, find the link on our website here. You can also view the weekly/daily editions on the same page.
  • This week’s “Insight Weekly” has a great piece on the “what if” scenario of there being no clear winner from the US election on Nov 3^rd or the result is contested.

Distraction Content – A Pandemic Thanksgiving & NHL Draft

Two things we wanted to highlight this week are this piece from CTV news on local Ottawa-based options for buying masks (La Bottega, United Way, OSEG & more) – read here.

Need ideas for how to plan for Thanksgiving with COVID restrictions in place? From social distancing dinners to virtual hugs check out this article for ideas (American source).

Bonus: The NHL draft will finally take place Tuesday Oct 6^th – The Ottawa Senators have 12 total picks including 2 in the top 5.  They will also announce a return to the retro jersey right before the draft. The re-build continues J

Our team is here for you

We are happy to run our next meeting with you by video conference (WebEx Meetings) rather than by phone if you so choose. We also continue to be available if you have friends or family who might be seeking a consult on their portfolio, wealth or estate planning goals.

 

Regards,

Mark, Peter, Sarah, Corinne & Andrea