The right balance

The reemergence of volatility has reminded us that the path of the economic recovery will be uneven, difficult to forecast, and may remain below its full potential for some time to come. Jerome Powell, Chairman of the U.S. Federal Reserve, said as much this week when he indicated that the pace of recovery remains “extraordinarily uncertain” and depends heavily on the ability to contain the virus successfully. Herein lies the next challenge for government officials. More specifically, what approach can foster a functioning economy with effective virus control? The answer is not likely a draconian lockdown, as was the case for most of the world over the past few months. Instead, it may involve tactics that are regionally focused, allowing businesses to remain open, mandating physical distancing and protective measures, and identifying and tracing emerging risks and outbreaks. Admittedly, this is easier said than done.

 

Investors face the difficult task of staying disciplined in their decision making, focusing on their long-term objectives, and not getting influenced by the short-term swings in sentiment and prices. This challenge has been particularly relevant in recent months and holds true today. While we watch the week to week developments closely, and are constantly monitoring our portfolios for opportunities and emerging risks, we remain committed to our long-term approach that is focused on proper planning, asset allocation, rebalancing, and regular reviews of all positions.

 

Coronavirus update

First, the good news. The provinces of Quebec and Ontario continue to see average new daily cases that are trending in the right direction. As a result, the situation in Canada is improving and has led to an expansion of reopening plans. The same can be said for much of Europe where mobility trends have been rising as lockdown restrictions have eased, and there have been limited signs of any acceleration in cases. The exception to this appears to be Sweden and the Balkan region, where there have been spikes in new cases in Serbia, Albania, Bosnia and Herzegovina, and Macedonia.

 

Elsewhere, the news has not been as encouraging. Central and South America remain the epicenter of the crisis. But, there are concerning trends in other regions too in Southeast Asia and the Middle East, where countries such as India, Iran, and Pakistan have seen meaningful increases once again this week. Meanwhile, in Russia, case trends have not accelerated but remain elevated.

Investors appear to be most concerned and confused about the pandemic in the U.S. The question and debate centers around whether a resurgence of the virus is occurring. At a national level, this does not appear to be the case. But regionally, the story is less clear. California, Texas, Arizona, Georgia, Florida, and North and South Carolina are some states that have witnessed apparent increases in new case volumes over the past week, with some also showing increases in hospitalization rates. Furthermore, the risk of escalation in other states remains very real, given the mass gatherings and protests that have created more opportunities for the virus to spread. Investors will undoubtedly focus on this over the next week.