To my clients:
It was a mixed week for North American stock markets with the Canadian TSX falling 0.8%; the U.S. Dow Jones Index rising 0.1%; and the U.S. S&P 500 rising 0.2%.
The main message this week is that Covid-19 cases are surging across much of the world. Globally, daily new cases are coming in near 400,000 per day – these are record highs. Europe too is seeing many countries hit new record highs in daily cases. Canada’s case counts are at record highs. While the U.S. is not quite yet at new daily highs, it is certainly getting within range. Projecting the trends, I’d suspect new daily highs in the U.S. will be hit next week or, possibly, the week after. More worrisome is that the weather in these regions of the Northern Hemisphere is only in the initial stages of taking a turn for the worse. Absent renewed lockdowns or, at least, much stricter social distancing measures, there is little doubt in my mind that case counts will follow the weather in taking a significant turn for the worse.
To date, an ameliorating factor in the new surging case counts has been the fact that hospitalizations and deaths have not increased proportionate to the rate seen in March and April. However, while not increasing at the same rate seen earlier this year, hospitalizations are nonetheless increasing. Further, deaths are a lagging metric in that it typically takes the virus several weeks to run its sad and inevitable course for that unfortunate minority. Deaths WILL begin tracking higher in the weeks ahead.
While the preceding is gloomy indeed, economic data – excepting employment – has generally been strengthening. The Philly Fed Manufacturing Index, a sub-component of the ISM Manufacturing Index I cite every month, came in at a multi-year high. Today, retail sales were reported far stronger than expectations. Housing data – undoubtedly helped by all-time low interest rates - has been on a tear for months.
But, as noted, employment is a bit more of an open question. While there has been a strong recovery from the cataclysmic readings seen in March and April (when about 20 million jobs were lost), it's nonetheless the case that only about half of these lost jobs have been brought back. Further, weekly jobless claims this week came in significantly higher than expected and the trend lower in claims seems to have stalled out in the range of 800,000 to 900,000 new weekly claims. These levels are approximately 4X higher than before the pandemic.
So while there has been definite recovery in certain sectors and economic data points, other sectors and data points remain fragile. Further, the coronavirus trend bodes ill for some of the economic data points. Economically speaking , will things turn as bad as March and April? I sincerely doubt it unless virus trends truly surge in an exponential manner. Simply put, the appetite for renewed full shutdowns is very low and expected health outcomes appear better now than earlier in the pandemic. But consumers could still retrench if the act of going out becomes too risky a proposition.
Overall, client’s continue to be positioned slightly below neutral relative to individual equity (stock) targets. I remain generally comfortable with this positioning, although I continue to look for an opportunity to bring accounts to full neutral or slightly greater than neutral if the opportunity is presented via a market decline in the weeks ahead. For the reason noted above, I suspect such an opportunity will, in fact, be presented.
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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