A gradual economic re-opening is underway

August 28, 2020

 

As this strange summer comes to a close, we thought to reach out to provide you with our thoughts on global markets and the economy as we head into what will be a season filled with headlines driven by health and economic policy, as well as the U.S. election.

 

Earlier this year, the longest running period of global economic expansion was abruptly brought to a halt as governments around the world shut down their economies in an attempt to contain the spread of COVID-19. To keep the economy afloat, a tremendous amount of government stimulus has been, and continues to be, introduced helping individuals remain solvent and to allow businesses to continue to operate.

 

Many sectors of the economy illustrated some positive impact from these stimulus measures in their most recent quarterly earnings. The technology sector in particular has gained a lot of attention during this pandemic, as their business models are well positioned to deal with an environment that remains far from normal. In your portfolio, we have increased your exposure to this sector throughout the year to participate in the shift to remote work environments, increased network security and faster communications.

 

Despite this positive narrative though, significant challenges persist. Many management teams continue to indicate that visibility on their earnings remains limited. We are keenly watching areas of the market which have become historically expensive, resulting in our decision to take profit in selected positions in your portfolio in recent weeks.

 

The gradual reopening of the global economy has resulted in a return to positive economic growth despite seeing a surge in COVID-19 cases. We expect this positive but pace of growth to continue well into 2021, along with the historically low interest rates that the central banks have moved us towards as part of their stimulus measures.

 

It goes without saying that the U.S. election in November will bring headlines which may move the markets in the short-term. With a more centrist Democrat combination of Joe Biden and Kamala Harris, our view is that either outcome, be it a Democrat or Republican win, will have a more moderate medium to long-term impact on the US economy.

 

Both Democrats and Republicans are incentivized to help their constituencies through this challenging economic period and have indicated that they will increase infrastructure spending as one way to do this. Furthermore, accommodative Central Bank policy, which has helped ignite the economic and market recovery, is unlikely to change any time soon regardless of election results.

 

Here in Canada, we will be closely watching how the economy reacts this fall to the reduction in government support to individuals and businesses.

 

Throughout this time, we have continued to manage your portfolio while adhering to our discipline of holding financially strong companies that are able to weather economic downturns, and which are resilient and well positioned for a changing world which is embracing technology at a rapid pace. As we expect market volatility to increase over the next couple of months, we have increased your current cash position in recent weeks. Our plan is to cautiously move these funds back into the market as opportunities present themselves.