The Single Biggest Economic Surprise of my Career

Jun 05, 2020 | Nick Scholte


... and, with it, portfolio adjustments bringing client equity exposure back near neutral. While extreme vigilance remains warranted, one cannot dismiss the possible implications of this morning's U.S. (and Canadian) Employment Report(s)

To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 4.4%; the U.S. Dow Jones Index finishing up 6.8%; and the U.S. S&P 500 finishing up 4.9%.

This morning saw the release of the U.S. monthly Employment Report, and the report was nothing less than stunning. In fact, I would suggest this report marks the single most surprising economic release of my career. Expectations were for a monthly loss of 8 million. Instead, 2.5 million jobs were ADDED! Likewise, Canada reported a proportionate number of jobs were created for the month of May (with equally proportionate losses expected), so those skeptics (and I’ve heard several today) doubting the data will have a difficult time reconciling how this might occur. Myself, I will take the data at face value and acknowledge that there is a credible possibility that an economic recovery might prove stronger than I had been anticipating. I still lean against this expectation, but my conviction has been materially reduced.

As such, I added back equity to client portfolios today. Clients are now positioned at ever so slightly less than neutral with respect to the long term equity (stock) target percentages set in their individual Investment Policy Statements. For simplicity, initial positioning this morning was effected through ETFs (exchange traded funds) tracking both the U.S. (S&P 500) and Canadian (TSX 60) indices. I will look to rotate out of these positions in the coming weeks by transitioning the funds to more specific stocks and sectors.

Despite this morning’s stunning employment reports (in both the U.S. and Canada), extreme vigilance is still in order. As all readers are no doubt aware, there have been mass demonstrations across the U.S. over the past week. Social distancing and other related precautions (like masks) were inconsistent at best, and non-existent at worst. Should these protests lead to a renewed wave of infection (anticipated to begin showing next week if it is to occur), this would undoubtedly be a significant setback to budding economic optimism. Further, I still question corporate profitability in the months ahead as distancing measures remain in place. And also worth noting is that despite today’s 2.5 million job gain in the U.S., this follow’s on the heels of the 20.5 million jobs lost last month. In short, we are not out of the woods yet… not even close.

Overall, after factoring in currency moves and U.S. vs Canadian market exposure, portfolios still remain modestly ahead of where they might otherwise be if defensive measures were never taken earlier this year. But it is also true that most of the significant “gain” portfolios enjoyed vis-à-vis the market has now been recaptured by the market. Of course, our stomach churning roller coaster ride was significantly lessened.

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
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email:

Visit Our Website:

We accept new clients primarily by referral from our existing clients. If you have family or friends who would be a good fit for our specialized wealth management services, please let us know.

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.