To my clients:
It was a mixed week for North American stock markets with the Canadian TSX rising 2.1%; the U.S. Dow Jones Index falling 0.7%; and the U.S. S&P 500 falling 0.8%.
As I’ve been writing in recent updates, there is a push and pull between vaccine hopes and the current covid reality - and it was on full display this week. Monday saw the “push” from vaccine hopes as a second drug company announced excellent trial results. Moderna Inc. indicated that its vaccine candidate showed an efficacy of 94.5%. This followed the prior week’s announcement by Pfizer that its own vaccine candidate had a greater than 90% efficacy also (and, in the final analysis of Pfizer’s data, confirmed at an even better 95% this week). As I wrote last week, both companies used very similar techniques when developing their vaccine candidates, so it is not particularly surprising that the efficacies were similar. I again reiterate that this is categorically fantastic news, and markets were up strongly on Monday as a result. An ever brighter light is shining at the end of the tunnel.
But the tunnel itself continues to get darker. The U.S. reported over 190,000 new cases yesterday, and over 2,000 deaths. I suspect the unwanted milestone of hitting 200,000 new cases will be hit today. If not today, then almost surely sometime next week. In Canada, Prime Minister Trudeau warned that 60,000 new daily cases could be hit in our country if personal contacts aren’t limited (an aside: as clients will know, I’ve been consistently cautious on the spread of covid right from the beginning, but even I have trouble seeing Canada hitting 60,000 new daily cases as this would translate to over 600,000 cases/day in the U.S. given the difference in populations. That said, I suppose it’s possible if mitigation measures aren’t taken seriously). In B.C., even stricter social distancing measures went into effect yesterday as our own daily case and death counts reach new pandemic highs. The grim current covid situation led to a retreat in the U.S. markets over subsequent days, and the overall negative U.S. week that was. This is the offsetting “pull” countering the push of vaccine hopes.
In light of the current situation, and as I type the update this morning, JP Morgan just announced a substantial reduction in its economic outlook. They now expect U.S. 1st Quarter 2021 GDP to decrease by 1.0% given the alarming rise in covid cases and the growing restrictions and mitigation measures cropping up throughout the country. That said, they expect a strong vaccine fueled second half 2021 recovery and concurrently raised their back-half 2021 estimates.
JP Morgan’s take on things is similar to my own expectations. In general, I suspect there will be periodic pullbacks in the market and I intend to use these as buying opportunities to increase client equity exposure (eventually, up to a modest “overweight”). The goal will be to look through the shorter term darkness ahead.
Along these lines, I incrementally added more portfolio equity for clients by acquiring a position in Boeing this week. This is a definite case of “looking through the darkness ahead”. Boeing was added on the same day that the U.S. Federal Aviation Administration re-certified and cleared the Being 737 Max for flight. This development adds a second tailwind to the Boeing story – the first being an anticipated surge in air travel given pent-up demand that we can all appreciate. That said, there is no question that this position could be subject to volatility and periodic bouts of weakness in the weeks and months ahead. I have no intention of evaluating the portfolio success of this position until at least the second half of 2021. In other words, not until we begin to emerge on “the other side”. I’d encourage clients to take a similar approach.
To conclude, while I’m encouraging clients to look through to “ the other side” in terms of their investments, let’s all make sure we get to that other side on a personal level also. Vaccines are coming. I couldn’t imagine a worse scenario than enduring the sacrifices we have all made since early this year, only to get covid on the eve of vaccine arrival.
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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