To my clients:

A brief heads up to clients: in the coming weeks, Brenda will be reaching out to schedule annual reviews. Unsurprisingly, it will be a virtual experience this year. Please give some thought to the days and times that work best for you.

It was a down week for North American stock markets with the Canadian TSX falling 0.7%; the U.S. Dow Jones index falling 0.9%; and the U.S. S&P 500 falling 1.5%.

U.S. covid deaths are now topping 4,000 per day. This is tragic, although not unexpected given the continual rise in active cases that began late in 2020. Indeed, winter influenced the spread of the virus in nearly textbook fashion, and this third wave of the pandemic is the worst to date. BUT, vaccine deployment is accelerating. Further, the U.S. Centre for Disease Control estimates that some 91 million people (over 25% of the population… a number more than 4X higher than the official count due to a suspected high ratio of asymptomatic and unreported cases) have already been infected by Covid-19. This is important because of a natural immunity – albeit of unknown duration – that likely results from prior infection. When the number of prior infections is combined with projections for those soon to be vaccinated, certain statistical models are beginning to suggest that a partial herd immunity may begin to take hold as early as this Spring. If accurate, herd immunity, combined with the warmer weather of Spring, offers hope that the current third wave may be due for a precipitous drop in the months ahead.

But to reiterate, the timespan for the anticipated respite will likely be measured in months (2+). Interim weekly measures will probably remain dire. Beyond the human tragedy, economic reports are likely to remain challenged as well. To wit, weekly jobless claims were reported yesterday at nearly 1 million. This marked a sharp rise in this closely watched metric (by both myself and RBC), and came in at a level significantly higher than the worst seen during the 2008 financial crisis. Such economic reports in the short term are likely to lead to higher volatility, and perhaps challenge the conviction and mettle of investors. That said, I reiterate the message put forth in last Friday’s update: markets are forward looking and typically forecast conditions some 9 months down the road. Economic conditions are almost certain to be vastly improved in Autumn of 2021, and this in turn bodes well for equity markets – bouts of volatility notwithstanding. Further – and very importantly – the U.S. Federal Reserve remains steadfast in its pledge that interest rates will not be going up any time soon, and certainly not in 2021. Again, this is very supportive of equity markets. I continue to look for opportunities to position portfolios appropriately for this anticipated recovery.

The preceding said, there remains a very significant caveat – the continued proliferation of Covid-19 variants popping up around the globe. As I recall writing at multiple points over the past year, Covid-19 is an RNA based virus, and such viruses (like the flu and common cold) are less stable than their DNA counterparts and prone to mutation. The worry here is that these mutations might lead to a Covid-19 variant resistant to the current crop of vaccines and/or be capable of re-infecting those already infected with the original strain of Covid-19. I understand that the “South African” Covid-19 variant is especially concerning some scientists as a possibly vaccine resistant strain.

However, even if a vaccine resistant variant were to emerge, the economic fallout would likely be significantly less than in 2020. Countries have learned which mitigation measures work; large swaths of employers have learned how to productively engage their workforces remotely; and new vaccines for new variants would likely be tweaks of existing vaccines, and not require the same ground zero research when Covid-19 first emerged (on this front – and this is mere speculation on my part - I’d not be surprised if an annual Covid-19 vaccination became as common as the annual flu shot). The point being that while vaccine resistant Covid-19 variants are a real risk to the year ahead outlook, it would be imprudent to react in any way right now, nor to over-react if such a variant became reality. Re-assess: yes; over-react: no.

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

Nick

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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