With Summer now in full swing, and as the Coronavirus continues to be on our minds, there is a lot to reflect on.
Some parts of the world – Canada, large parts of Western Europe, and China for example – continue to see generally stable or lower numbers of new daily cases of the Coronavirus. Governments in these regions have to this point successfully enabled their societies and economies to safely adjust to living and functioning with a virus that is still present but under control.
Elsewhere, the story remains much more challenging. Trends continue to be troubling in parts of Central and South America, the Middle East, parts of Africa, and large parts of South and Southeast Asia. But the region that has seen the most concerning deterioration is the U.S. In recent days, the number of new daily cases has unfortunately reached 50,000. It has forced a number of states to scale back their reopening plans, with some reintroducing restrictive measures and mandating the wearing of masks. We expect more restrictions may be needed in the weeks to come.
Surprisingly, global markets have been resilient in the face of this recent escalation. It would be natural to expect global markets to have responded poorly in the face of the concerning recent virus trends. On the contrary, they have been much more stable (even positive) compared to when the virus first emerged earlier this year. The question is why?
There may be a host of reasons, ranging from the virus being less of a surprise, to the extensive work and progress on vaccines and therapeutics, better preparedness to help the more vulnerable population, lower odds of full scale lockdowns in the future, and the very significant amount of government aid that is in place, helping businesses and consumers, at least to some extent. But, we believe one of the most important factors at play is the positive economic results that continue to build momentum. Last week, the U.S. announced it added more than 4.7 million jobs in June, adding to the 2.7 million jobs gained in May. U.S. employment remains well below the pre-pandemic level as there were more than 20 million jobs lost between March and April. Nevertheless, it’s a meaningful change in trend from earlier this year. Furthermore, last week’s readings of manufacturing activity for the month of June across the U.S., Canada, Europe, and China add additional evidence that suggest the worst may have passed for now.
In light of all of this, it is important for us to keep in mind that the market is not the economy. Markets reflect the expectations of future corporate profits, while economic data most often looks back at events that happened in the past. Markets look ahead, which partly explains why the first quarter of this year was one of the worst negative quarters in history for the markets, as the world was coming to terms with news about the virus, but then the second quarter was one of the best positive quarters in history, as global investors became more optimistic about progress with vaccines, treatment and economic reopening. So far this year, the negative market reactions have been roughly balanced by the positive reactions, and moving forward, we still expect the pace of economic recovery to be determined by the virus. Improving virus news could encourage consumer confidence, which should lead to increased spending and corporate profits. Hopefully, the need for government stimulus will be replaced soon by gradually improving economic strength.
When faced with all of this uncertainty in the months ahead, the need for a wealth plan including a diversified portfolio, being run by disciplined management teams is as great as ever. Please reach out to me to discuss concerns about your portfolio. I’ll gladly make time to review your investments to ensure that your money is working as hard as it can and is invested suitably for you. And feel free to share this information with anyone who you think may find it useful.
Wishing you and your family a truly enjoyable Summer!