Is that a Canary I Hear?

Jun 19, 2020 | Nick Scholte


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Amid rising Covid-19 caseloads in certain U.S. states, Apple has opted to close some of its stores. Nationwide, up-trends are also emerging. Might this be a gut check for markets seemingly anticipating a year-end return to normal?

To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 1.4%; the U.S. Dow Jones Index finishing up 1.0%; and the U.S. S&P 500 finishing up 1.8%.

I won’t dwell – mid-morning today Apple announced that it will be temporarily closing certain Apple stores in Florida, North Carolina, South Carolina and Arizona owing to surges in Covid-19 cases in those states. As I have highlighted the past two weeks, there has been, and continues to be, a stealthy trend of rising caseloads emerging in many U.S. states that has been masked by a fairly flat countrywide trend. The countrywide trend has been predominantly flat because of declining caseloads in many Northeastern states (particularly New York) which have been offset by the increases elsewhere. While the states where Apple has chosen to close stores are certainly showing increasing trends, I’d note that there are many others as well. Of particular note are rising caseload trends in the large states of Texas and California. I’d not be surprised to soon see selective closures by Apple and other companies in those states as well as others. Even on a national basis, the first hints of a new uptrend are starting to emerge. Might today’s announcement by Apple be the proverbial canary in a mineshaft? Markets which were solidly up on the day sharply reversed course on the news.

Clients will know that I have consistently been concerned by both the prospect of a resurgence in cases as well as the ability of consumers to fully participate in re-opened economy owing to safety concerns. That said, I do not think we will see an exponential increase in new cases proportionate to that seen in March. Social distancing awareness and personal hygiene will negate much of this propensity. In particular, the use of masks alone is regarded as a game changer in limiting rapid viral spread (as an aside: I am very disturbed by how the “official narrative” on masks did a complete 180 from early in the pandemic when masks were widely said to be ineffective, to now where masks are seen as a de facto requirement for a successful reopening). So I do believe that the cataclysmic type of economic and market plunge seen in March and April – fueled by the fear of overwhelmed hospitals - is now off the table in developed economies like the U.S., Canada and Europe (among others). Further, the U.S. Federal Reserve announced more supportive measures earlier this week in that they have now begun buying individual corporate bonds (prior they were merely purchasing corporate bond ETFs). The European Central bank also undertook its own supportive measures earlier today. Central Banks have unequivocally pledged support for economies worldwide and the power of this backstop cannot be dismissed.

Nonetheless, hiccups (and worse) are to be expected in the return to normal, and I’d characterize today’s Apple news as perhaps the most overt so far. It certainly undermines the unfettered optimism that had been prevailing whereby market participants seemed to be envisioning a complete return to normal by year end. And it will reinforce fears for consumer safety and the degree to which individuals are willing to participate.

It’s a tricky juncture for portfolio management. As such, I deem the slightly below neutral equity weighting of portfolios to be appropriate at present.

That’s it for this week. All the best and stay safe,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
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