I thought it was important to provide a brief update on the market and our positioning. We have been fielding a lot of questions about Canada and how the slow vaccine rollout will affect the economy. It is important to remember that we invest globally and we need to view the world from a global lens.

After a difficult few months, the optimism regarding the virus situation has improved meaningfully across the world’s major nations. The number of new infections has plateaued in just a few months, and global transmission rates have fallen to their lowest level since the pandemic began. Tightened restrictions, vaccinations and seasonal factors have all contributed to curbing the spread of the virus. Containing COVID-19 has been critical to the economic recovery, which is now underway. There is still much more room to grow supported by significant monetary and fiscal stimulus. We are looking for a significant rebound in economic growth this year or next with most economies achieving pre-pandemic levels of growth.

There are number of things that we are watching closely, including uncertainties related to the distribution of vaccines and their efficacy against new variants, and the possibility of another virus wave. There is a concern that governments all around the world will keep interest rates low for an extended period of time leading to inflation.

However, there are arguably more reason for optimism than pessimism:

• Governments, businesses and workers have adapted to the pandemic to the point that the latest wave of infections only minimally damaged the economy.
• Whether or not the infection numbers remain low over the next few months, it is very likely that the virus will be in serious retreat no later than this summer.
• Vaccines appear to be a genuine game-changer.
• Monetary and fiscal stimulus is likely to remain powerful and significant pent-up demand waits to be unleashed.
• A key takeaway from the pandemic experience so far is that the economic rebound has been more forceful than expected at nearly every turn.
• Lastly, we continue to anticipate little economic scarring after the pandemic is over.

Areas of Concerns

In our opinion enclosed are the three biggest risks:

• A shift in the Federal Reserve guidance on how quickly the US is going to raise interest rates because inflation is higher than expected.
• Washington to increase corporate and individual tax rates – this will be a headwind for the economy
• The upcoming reporting season not being as good as the market expected. Some things to watch for are massive supply chain strains; the February winter storms and increased input costs.

Interesting Charts

Mobility Has Increased. 

Vaccines are being administered.

 

Herd Immunity could come by the fall.

CANADA

In 2021, Canada appears set to lag the U.S. recovery somewhat, for four reasons. Firstly, the U.S. is vaccinating at a much faster pace than Canada, allowing for a more rapid normalization of economic activity. Secondly, the U.S. has repeatedly demonstrated that it will re-open more quickly than most countries even if its pandemic conditions are similar. Thirdly, the U.S. is now delivering big new fiscal stimulus that is not being fully matched by Canada. Finally, the Canadian dollar is strengthening against the USD, diminishing our country’s competitiveness.

Our current recommendations:

Asset Mix – maintaining overweight in stocks, underweight in bonds

In our best case scenario, the economy enjoys a powerful rebound in 2021 as virus threats fade and normalcy draws closer. We’ve seen a substantial jump in bonds yields for the first time since early 2020. Given the expectation of a solid recovery in economic growth and corporate profits, we believe a bias toward risk taking remains appropriate. Equities continue to offer an attractive risk premium versus fixed income. As a result, we are maintaining our overweight position in stocks and underweight in bonds

The economic impact of the COVID-19 pandemic is also reinforcing the importance of time-horizon financial planning for all investors. If there is anyone you know who will benefit from a fresh perspective, I will be happy to help them.

As always Marlee and Ruby - enjoyed the winter and are looking forward to the spring. 

As always - Stay Safe!