To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 3.8%; the U.S. Dow Jones Index down 5.6%; and the U.S. S&P 500 down 4.8%.
Frustratingly, the market seemed to grow more aware of the concerns I’ve been highlighting for some time – namely, rising risks of Covid19 infections as economies re-open, and even when re-opened, how fully consumers will participate amid continued safety concerns. I say “frustratingly”, because I added back equity to client accounts last Friday as a result of shockingly strong employment reports in both the United States and Canada. Thankfully, client equity positioning remains slightly below “neutral” (relative to the long-term target set in individual Investment Policy Statements), but with the benefit of that darn 20-20 hindsight, I obviously wish I had remained strongly underweight as was more consistent with my convictions.
With respect to daily new cases of Covid19 in the U.S., there are definite uptrends re-emerging in many southern and western states. I am fortunate to have a number of engineers and ex-engineers as clients, and these analytic types like data. One such client has been obtaining the raw daily case data for the U.S. and then building his own 7-day moving average charts for all individual U.S. states. The 7-day moving average smooths out the vagaries of daily data (for example, without exception, country-wide new caseloads tend to drop over weekends and then slowly build during the week) and it reveals a better picture of actual trends. I am further fortunate that this client shares his charts with me when he periodically updates them (coincidentally, his most recent update came as I was typing this week’s client message). These charts have been showing uptrends for a couple of weeks, and in some cases the uptrends look to be accelerating (i.e. states such as Arizona, Texas, California, North Carolina, South Carolina, Florida, Oregon, Nevada, Utah and a handful of others). So this is worrisome. Conversely, there doesn’t (yet) seem to be a dramatic spike in cases resulting from the social protests sweeping the U.S. However, prudence suggests another week be given before drawing any more definitive conclusions on this front.
Worldwide, new cases continue to rise as Latin America, Southeast Asia, and Middle East cases are rising rapidly.
Perhaps further dampening sentiment were comments by U.S. Federal Reserve Chairman Jerome Powell. Both Chairman Powell, and the Fed’s policy-setting Federal Open Market Committee see a lengthy recovery ahead, and certainly not of the v-shaped variety the market appeared to be anticipating and as might have been hinted at by last week’s employment reports. To reinforce his point, Powell said “we’re not even thinking about thinking about raising [interest] rates”.
I’ll not dwell longer in this week’s update. Covid19 case data over the next week might be at one of the most critical junctures of this whole crisis.
That’s it for this week. Stay safe and 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
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