Wade’s Coronavirus and Market Update
Given this week’s continued volatility, I am communicating with you one more time to share what I hope to be timely and useful information, along with some bits of wisdom and interesting opinions I’ve come across from my daily readings. I expect the frequency of these communications will greatly diminish as the markets begin to recover. Let us all hope that will be sooner rather than later.
Let me begin by sharing a few insights and advice from the Portfolio Advisory Group at RBC Wealth Management.
“In the near term, we expect these large swings in prices to continue. In our experience, basing investment decisions on extreme scenarios and trying to make large portfolio shifts in today’s environment of big price swings is very challenging. It may be too focused on the short term and may do more harm than good given the increasing intervention by policymakers designed to stabilize the economy and eventually reignite economic growth. Past experience reminds us that market declines often end in a climactic fashion. But no one has the ability to accurately predict exactly when that will be.”
For those of you who may be interested in Jim Allworth’s perspective views on the markets, please listen to the following audio clip. Jim has been in the investment business for 51 years, and is co-chair of our Global Portfolio Advisory Committee.
https://players.brightcove.net/3835386791001/default_default/index.html?videoId=6142677453001
Our friends at Fidelity Investments provided us with “the three things I’d like you to remember during times of market volatility.
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Volatility is a normal part of long-term investing
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Market corrections can create attractive opportunities
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Avoid stopping and starting investments”
On the last point they wrote: “If you remain invested, you will benefit from the long term uptrend in stock markets. If you try to time the market, and stop and start your investment, you run the risk of hurting future returns by missing the best recovery days in the market.”
On a slightly different topic, recall that last week I mentioned that there were a few technical indicators that might be showing we are reaching the point of maximum panic.
Well on Monday, one of those indicators – the CBOE Volatility Index (nicknamed the VIX- and a great market fear indicator) even surpassed last week’s level, which was already at its highest level since the 2008-09 financial crisis. As I am writing this communication, this VIX index is now dropping.
As for my own unofficial contrarian ‘Check the Front Page Headlines’ indicator, today’s front page headline from the Financial Post reads: “ECHOES OF THE 1930s: Some Analysts raising spectre of a Depression”. It will be interesting to look back at that headline in a few years from now. On Tuesday, the front page of the Globe and Mail read: “Market suffers worst day since 1987 as Canada’s economy grinds to a halt’. And back on page B7 of the Globe’s March 19th edition, I found this headline to be interesting: “Young investors face first major market rout”
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We are all currently being inundated with information from the news media, social media, and personal communications on a daily basis. I am passing on to you information and quotes that I have personally found to be interesting and/or inspiring.
These first few quotes are short and address the crisis we are going through.
“We have to act decisively and not be afraid to make mistakes. In a pandemic response, speed trumps perfection.”
Andre Picard,
Globe and Mail
March 18, 2020
“We are stronger than we realize. We will get through this.”
Gary Mason
Globe and Mail
March 18, 2020
“China reported no new local cases yesterday; life is returning to normal there…monetary and fiscal policy definitely will ’go big’ as the government mobilizes a massive response, unlike anything since the 1930s.”
Greg Valliere
AGF Insights and Market Perspectives
March 19, 2020
The following quotes are more related to the stock market.
“If there is one thing that previous financial crashes can teach us, it’s that this, too, shall pass”
Tim Kiladze
Globe and Mail
March 18, 2020
“The stock market may bottom long before the coronavirus epidemic peaks, analysts say”
Christ Matthews
CBS Market Watch
March 19, 2020
My comment: This is somewhat contrary to my own previously held belief that the “stock market will start turning around once the growth rate of new coronavirus cases begins to slow down and the virus news coverage begins to decrease” (from last Friday’s communication).
“Market action a century ago suggests worst could be over for stocks …What was going on in 1917? The Spanish Flue was just starting to bubble up, with the deadliest month of the whole pandemic not hitting until October 1918- by then the Dow Jones had already begun to heal…So while the worst was ahead in terms of the Spanish Flue in December of 1917, the worst was done for the stock market after (a) 33% drop.”
Shawn Langlois
CBS Market Watch
March 19, 2020
My comment: According to Wikipedia, the Spanish flue (also known as the 1918 influenza epidemic) infected 500 million people (one quarter of the world population) and killed anywhere from 17 million to 50 million people.
“Recent indiscriminate selling could be a sign that the correction is closer to the end than the beginning. ….A recession is all but a given…the market has priced in a lot of downside already.
Usually it makes sense to wait for the momentum low to form, then the base building to take place, and then the retest. That’s the low we want to buy. But at down 32% it’s sure getting tempting here to take the other side of all this forced liquidation. Who is that who said something about buying when there is blood in the street? There is plenty of it right now.
The contrarian in me wonders if we are nearing a “buy the news” moment in which the upcoming shockingly bad economic data is so priced in that the market won’t be able to move much lower on them. …. The ability to not fall on bad news is another major tell for exhausted bear markets.”
Jurrien Timmer
Director of Global Macro for Fidelity
March 19, 2020
My comment: I have to admit that Jurrien from Fidelity and Eric Lascelles from RBC have been my two favourite economists during this crisis.
“We consider periods of higher volatility to be normal market behavior that can help clear excesses and create investment opportunities.”
TD Asset Management
March 16, 2020
As for the following lengthy quote from Compound Capital Advisors , I am providing a good portion of their article entitled “When All News Is Bad News” since I found it to be quite well-written and eloquent, albeit somewhat critical of the media.
“The Volatility Index (VIX), also known as the “fear index,” ended today at 82.69. Since its inception in 1990 it has never had a higher close.
When was the previous record?
November 20, 2008.
And then, for no particular reason, volatility gradually started moving lower….
But a month later, the S&P was 16% higher. 6 months later, the S&P was 23% higher. A year later, the S&P was 49% higher. Five years later, the S&P was 164% higher…..
I know what you’re thinking. That won’t happen this time around.
In the midst of an extreme panic, it’s hard to believe that it will ever end….
In midst of a bad situation, there are people who simply want to panic and assume the worst, which is why we find ourselves in a panic in the first place.
The media has figured this out and is happy to deliver the worst possible news available at any given moment.
They won’t put the COVID-19 deaths in any context and tell you how many people die of all sorts of things every single day (150,000 globally).
They won’t tell you that this virus thankfully isn’t killing children, and in adults under the age of 50 the current estimated death rate is extremely low (and likely to go lower as we test more).
They won’t tell you that during past pandemics (see swine flu/H1N1) the fatality rate came down as the denominator (# positive cases) grew and more people were tested (the sickest are always tested first, leading to a much higher death rate initially – this is a high likelihood with COVID-19 given the high % of cases that are mild/asymptomatic. If you’re not showing any symptoms, you’re not likely to go out and get tested, especially now that you are instructed to stay home).
They won’t tell you that the number of active cases in China is moving lower and that active cases in South Korea may be starting to level off.
They won’t tell you that the extreme containment measures we are all taking is going to slow this thing much faster than any model could ever predict.
They won’t tell you such things because giving you a silver lining doesn’t generate clicks or keep eyeballs on the screen. Instead, fear sells and in the social media age it’s never been easier to create panic and mass hysteria.
When all news is bad news it can seem as if it will be that way forever. But it won’t. Betting against human grit and ingenuity in the long-run has always been a bad bet in the past and this time is no different.
That’s true in life and in investing.
It will get worse before it gets better but this, too, shall pass. We’re going to beat this thing and come out stronger than before. Better days are ahead.”
Charlie Bilello
Compound Capital Advisors
March 16, 2020
Finally, I encourage to contact me if you have any questions regarding your investment portfolio. We are available and ready to address any of your questions and/or concerns.
Kind regards,
Wade
March 20, 2020
Disclaimer
The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof.
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information.
