To my clients:
If you prefer, please read this update on my website and share the link as you see fit:
As I type (roughly 10:30 am), it has been a horrendous week for equities, with the TSX down ~21% so far for the week (NOT A TYPO); the Dow Jones Index down ~ 15%; and the U.S. S&P 500 down ~ 13%. All three indices are down over 20% for the year-to-date.
As with last week, I’ll present this special update in point form for clarity:
- Earlier this week I took further defensive measures on behalf of clients. This followed on the heels of 2 (two) previous 10 – 15% reductions for clients in previous weeks, as well as three reductions of ~ 5% each the prior 15 months.
- ALL clients are now below the minimum equity targets set in their individual Investment Policy Statements. Depending upon the individual client’s long-term target, typical client equity weightings are now just 20% to 30% of the overall portfolio.
- I’ve generally concentrated equities (stocks) retained in conservative stocks and sectors.
- As a result of the preceding, declines in client portfolios are far less than those experienced by the overall market.
- Global declines are obviously tied to rapidly increasing coronavirus concerns. The Canadian situation this week was exasperated by an “oil war” between Saudi Arabia and Russia. Luckily I sold oil producers a couple of weeks ago as part of an ongoing process to reduce portfolio “beta” (an industry term for stocks that tend to move up/down more than the overall market).
- Sports leagues are shutting down (NBA last evening; Major League Soccer in North America; NHL and Major League baseball as I type; European soccer leagues etc.); I suspect/believe that schools and businesses may soon follow.
- In my mind a recession is now an absolute certainty. It will probably be a sharp recession. Duration is an open question.
- But with the measures already taken and described above, I believe clients are well positioned and I don’t anticipate further overt defensive measures via additional equity reductions. That said, a continued rotation to defensive sectors is likely to continue where appropriate.
- Within the past ½ hour, the Fed has announced a massive “liquidity” injection. This is breaking news and details are sketchy, but it appears to be an injection of $1.5 trillion. I’d suggest that this injection might best/initially be viewed as yet another iteration of “quantitative easing” that was commonplace in the aftermath of the 2008 financial crisis.
- I don’t believe any such measures are likely to be successful in the short-term. Virus spread and the correlated impact to the economy is wholly separate from monetary policy.
- The preceding being said, these liquidity injections and the general good health of the economy prior to the outbreak of coronavirus bode well for a market recovery when virus spread decelerates (not necessarily reverses – decelerates). Economic recovery will probably follow by about 6 months. It’s possible that the envisioned market recovery might be V-shaped.
- I’ll attempt to be opportunistic and look for opportunities as a result of the economic and market dislocations.
- Lastly, as I said above, I believe school and work closures may be in our collective future. Brenda and I are making arrangements for the possibility of working from home if this expectation comes to pass. Personally, I know I’m more productive when I work in the office setting, so I don’t intend to work from home unless circumstances warrant. But this is a heads up that the possibility exists.
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
Toll Free: 1.844.665.9900 │Email: email@example.com
Visit Our Website: www.nickscholte.ca
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Any recommendations herein are for the exclusive use of clients of RBC Dominion Securities and Investment Advisor Nick Scholte. Any other direct or indirect recipient of this email should consult with his/her own licensed investment advisor prior to implementing any investment action he/she may be contemplating.