To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 0.3% (note the extra 0); the U.S. Dow Jones Index down 1.4%; and the U.S. S&P 500 down 1.3%.
It’s another short update this week, re-emphasizing my thoughts on the coronavirus outbreak and a quick thought or two on economic developments.
Regarding the coronavirus, it “felt” (I realize this is a subjective term and doesn’t really mean anything, but I’m sticking with it) as though this was the first week in many where investors took a step back to assess the possible economic impact of the coronavirus (hence the market losses noted above). Prior to this week, it further “felt” as though investors were “whistling as they strolled by the proverbial graveyard” (hence the gains seen in recent weeks). Myself, I remain concerned about the spread of this virus, and the hold it is beginning to take in countries outside of China – notably South Korea and Japan. As I recently discussed with a client during an annual review, I’m further concerned about the potential this virus would have to spread in poor, densely populated areas such as India or Africa. From reasonably early on I’ve been concerned by the ease of transmission this virus is exhibiting. It is for that reason that I’ve held back putting a modicum of overweight equities in client portfolios (i.e. adding to the stock position).
Because to add to equities at this juncture is something I’d very much like to do. As was the case last month, the Philadelphia region reported a second consecutive surge in manufacturing activity. Corporate profits are coming in ahead of expectations. Trade tensions have taken a turn for the better. But that’s my take on things. How about the view of the Richard Clarida, the Vice Chairman of the U.S. Federal Reserve? In an interview with the Wall Street Journal, Mr. Clarida stated:
“the fundamentals in the U.S. are strong sustained growth, strongest labor market in 50 years, and price stability with inflation close to our goal. So yeah, it’s a good picture.”
So, we have a strong U.S. economy offset by a troubling viral outbreak, the economic impact of which nobody yet knows. However, to be sure, previous epidemics have proven to have fleeting economic impact. That may well be the case this time, and I lean toward that perspective. But prudence in the face of the coronavirus gaining traction in countries outside of China keeps me patient for now.
As such, clients remain positioned very close to their individual long-term equity (i.e. stock) targets. Any overweight commitment will have to wait.
That’s it for this week. All the best,
Nick Scholte, CIM, FCSI
Vice-President & Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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