To my clients:
Owing to scheduling requirements, today's update comes early ahead of the weekly market close. As of this writing, it has been a mixed week for North American stock markets with the Canadian TSX so far up 1.1%; the U.S. Dow Jones Index down 0.3%; and the U.S. S&P 500 down 0.5%.
As has been the case for about 10 weeks straight, there were many noteworthy developments this week. That said, I want this week’s update to be exceedingly short so as to reinforce client messaging. Here are the points I want clients to remember:
1) Clients remain underweight equities (stocks) and have been underweight equities since February 25th. That said, there have been some incremental additions in recent weeks.
2) Economic data continues to be abysmal. 1st Quarter US GDP contracted a worse than expected 4.8%. Quarter 2 will be far worse.
3) Monetary authorities (i.e. the U.S. Federal Reserve and other central banks throughout the world) are supporting the economy in a historic fashion (this is not hyperbole – central banks have never acted this forcefully before).
4) Fiscal authorities (i.e. the spending power of governments) are likewise acting in historic fashion.
5) The Covid-19 new infection curves have flattened in many countries and are beginning to trend down.
6) Many countries have begun, or are planning, the re-opening their economies.
7) While points 3 through 6 are positive, unless consumers feel safe, I do not believe a return to economic “normalcy” (by this I mean how consumers behaved, say, as recently as late 2019) is realistic. My thesis remains that consumer behavior will remain suppressed, to some degree, for a minimum of 12 more months. Likely longer. A vaccine is not likely to be widely available before then. Nor will there likely be herd immunity.
8) Markets appear to be pricing in a much quicker return to economic/consumer normalcy. I suspect this belief will be challenged in the weeks and months ahead as distancing measures are relaxed and infection rates rise anew (my opinion informed by many scientific studies such as this).
9) I believe that opportunities to add back equities at attractive levels will be presented as points 7 and 8 play out. Patience may be required.
That’s it for this week. All the best and stay safe,
Nick Scholte, CIM, FCSI
Vice-President & Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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