To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 2.9%; the U.S. Dow Jones Index down 3.3%; and the U.S. S&P 500 down 3.3%.
Volatility surged this week, perhaps as a result of heightening concern regarding the new Covid-19 variants proliferating worldwide. Clients will know that I have been highlighting these new variants as a primary concern of mine for several weeks now. However, at this juncture I still view these new variants as an outside threat to derail the economic recovery. Unless a new strain emerges that proves nearly immune to the current (and growing) crop of vaccines, I believe the current vaccine rollout will be effective enough in reducing the spread of Covid-19 such that time is bought to “tweak” existing vaccines to more robustly control the new and emerging variants a bit further down the road. It’s not a prefect scenario, but control of the pandemic is still directionally positive.
And to reiterate, vaccines continue to roll out while daily new infections are plunging in the United States and Canada (this is a narrative that seems to be flying below mainstream media coverage). Cases have now fallen for 17 consecutive days in the U.S., and the trend suggests that daily cases may well fall below 100k within 10 days (from more than 300,000 per day just one month ago). Further, at present in the U.S., there is an approximate 9X rate of daily vaccinations to new Covid-19 cases. This ratio bodes very well for the continued decline in new Covid-19 cases and the directionally positive trend I noted.
The above all said, the new variants are unquestionably a situation that must be monitored very closely. Should a strain emerge that does, in fact, prove mostly immune to current vaccines, there is no question that markets, as well as the economic outlook, will suffer material setbacks.
So yes, volatility picked up significantly during this notably down week. But I’d remind clients that markets finished 2020 on a high note, and began 2021 in a similar manner. A correction from such a strong run was not unexpected. In fact, I wrote as much in my last update of 2020 when I stated:
I suspect that there will be several bumps – perhaps significant ones – between now and next summer. But as clients, I’d encourage you to do your best to “look through” any such bumps. As your portfolio manager, that is what I am attempting to do also.
I again acted upon this outlook by incrementally adding more equity to client portfolios earlier today in a Canadian company called Element Fleet Management Corp. (symbol: EFN). Notwithstanding the emergence of a vaccine immune Covid-19 variant, I intend to continue this incremental and deliberate trend of equity additions over the months ahead.
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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