As a Post-Covid Reality Approaches, Strong Economic Metrics in the "Here and Now" Reflect the Optimism

Apr 09, 2021 | Nick Scholte


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And certainly the promise of sustained support from the U.S. Federal Reserve doesn't hurt. Client portfolios have been moved to a significant overweight equities stance.

To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 1.3%; the U.S. Dow Jones Index finishing up 2.0%; and the U.S. S&P 500 finishing up 2.7%.

First things first: portfolio rebalances were completed earlier this week. Economic conditions (particularly the U.S.), are strong in the present and forecast to get stronger still later in the year. Equities (i.e. stocks) should benefit. As such, discretionary client portfolios have been shifted to a solid overweight equities stance (relative to each client’s own unique objectives set in their Investment Policy Statements).

Evidencing the strong economic conditions in the present are: last Thursday’s ISM Manufacturing Index coming in at 64.7 - the highest level since 1983; last Friday’s U.S. Employment Report showing nearly 1 million new jobs created in March; and the ISM Non-Manufacturing Index (aka Services) coming in at 63.7 – the highest ever measure for this metric since its introduction in 1997. The U.S. is clearly ramping up for a post-covid reality.

While Canada’s vaccine rollout has been lagging far behind that in the U.S., and has clearly contributed to a significant third wave of infection, even here our country appears to be ramping up for a post-covid future. To wit, Canada created 303,000 jobs in March. While I rarely note the Canadian employment report owing to the wild inconsistency of the month-to-month metric, longer-term analysis of the data can prove much more useful. And looking at the longer-term Canadian employment data, it should not be ignored that Canada is now just 296,000 jobs shy of recovering ALL of the more than 3 million jobs lost during the pandemic.

And lastly, one should not ignore the very strong support offered by central banks worldwide and, most notably, that of the U.S. Federal Reserve. The most recent published minutes from the U.S. Fed had this important nugget: “various participants noted that changes in the path of policy should be based primarily on observed outcomes rather than forecasts”. Yet again, the Fed is emphasizing that it WILL allow inflation to ramp up and, indeed, is striving to accomplish this outcome. Pre-emptive rate increases are NOT in the cards. It’s difficult to overstate the support such an approach will lend to the U.S. economy over the next couple of years.

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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