To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 0.8%; the U.S. Dow Jones Index finishing up 1.9%; and the U.S. S&P 500 finishing up 1.5%.
It’s the first week of a new month and, with it, the usual assortment of top tier economic releases - but we’ll get to that later…
Superseding the economic data is the bombshell news of the last 24 hours that President Trump has tested positive for Covid-19. Frankly, it’s difficult to downplay this development given the myriad ways – both positive and negative - the situation could play out.
First – and let’s get this out of the way right off the top – is this development overly surprising to anyone? Mr. Trump has been the ‘skeptic in chief’ in the U.S., and regularly and openly mocked those who wore masks while continuing to hold election rallies in front of large crowds (yes, outdoors recently, but not so earlier in the year such as the indoor rally held in Tulsa, Oklahoma in June). I’d like to say something about karma (and I guess I just did), but it’s more straightforward than that. Simply put, conducting oneself with a cavalier attitude toward Covid infection is to invite the inevitable. In private conversation early on in the pandemic I said that math is math, and math works.
Now, the knee jerk reaction to this huge dose of uncertainty in the political, economic and market realms was an initial sell-off in the stock markets. But, interestingly, markets strengthened materially from the early morning weakness. Why?
Well, because, as I mentioned earlier, this development could legitimately have both positive and negative consequences. Admittedly, the negative are easier to identify. Three obvious negatives include:
- Lack of visibility as to the leadership in the U.S.
- Implications for the upcoming election on November 3rd
- De facto confirmation of renewed growth in viral spread in the U.S.
However, offsetting these negatives is potentially one very significant positive: skeptics and Covid-19 deniers (I saw a handful of news stories back in March in which Trump supporters openly stated that Covid was, at best, an exaggerated health concern while, at worst, it was an outright hoax manufactured by “the Democrats”) will have a difficult time rationalizing their position in light of Trump’s infection. Particularly so if Mr. Trump takes a turn for the worse (he is, of course, older, overweight and not particularly active). This might therefore lead to greater adherence of mask and social distancing guidelines and actually improve containment efforts across the U.S.. Then again, the flipside is also true – if he gets through the infection in relatively good stead (one would presume he gets the best of care and aggressive treatments), he could well be handed an “I told you so” moment that will further embolden skeptics and promote further viral spread.
Again, this situation could go any number of directions and I won’t presume to know which it will be. But what I do know is that Covid-19 is real and that people are dying. I also know that all virus’ spread more easily in colder seasons when people congregate more closely indoors. That season is fast approaching.
Turning to economic developments, there was a very significant slowdown in U.S. job growth reported this morning with “only” 661,000 new jobs being created in the month of September. Of course, during normal times this would be a staggeringly strong report. However, now, coming on the heels of more than 20 million jobs lost earlier this year, and a report last month that saw 1.4 million jobs created, it is a disappointing report that greatly missed economists’ estimates and marks a notably sharp slowdown in hiring activity.
So too did the ISM Manufacturing index miss economists’ estimates. At a reading of 55.4, it also registered as a slowdown from the prior month. That said, on its own, a 55.4 reading is decent. The slowdown should be monitored, but it is not alarming in and of itself.
Next Monday ISM Services will be reported. It will be interesting to see if that last of the “big three” data points I track also misses expectations and suggests slowdown.
As indicated many times in prior weeks, I have difficulty envisioning any outright “overweight” commitment to stocks in the months ahead. At best, a full neutral, or slightly more than neutral, commitment is envisioned. As it stands, clients remain ever so slightly below the neutral long-term target set in their individual Investment Policy Statements.
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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