Operations/Market Update + Insights from Experts
“The world ain’t all sunshine and rainbows...and I don’t care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That’s how winning is done.”
Rocky as portrayed by Sylvester Stallone, Rocky Balboa (movie), 2006
“I gotta keep breathing. Because tomorrow the sun will rise. Who know what the tide could bring?”
Chuck Noland as portrayed by Tom Hanks, Cast Away(movie), 2000
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Like you, we are following the updates about COVID-19 with great concern for those affected. Our hearts go out to all those who have been impacted, and we understand that your safety and those of others are your main preoccupations.
It may be difficult to focus on the outlook for financial markets when the welfare of our clients, family, and friends is top of mind. Nevertheless, putting events that affect the markets into perspective is an important responsibility of ours – in good times and bad. As a result, we wanted to share some thoughts on the current situation.
OPERATIONS UPDATE
Before we discuss the markets let us emphasize that if you need us, we’re here. We are open for business, and we are working from home. This means that we are available to address any of your questions, discuss your existing investments, and offer recommendations if you have new sums to invest.
My Associate Advisor Kim Rivet has thoughtfully prepared handy (click on ADMINISTRATIVE TIPS to open) ADMINISTRATIVE TIPS that covers important subjects such as depositing money and opening new accounts.
Kim is also available to address all administrative matters (including online viewing), money transfers, tax forms, etc. She is most easily reached at kim.rivet@rbc.com.She can also coordinate a phone call with you.
Let us re-assure you that we are very vigilant with all client communication and this remains our top priority.
MARKET UPDATE & PERSPECTIVE
As you can well imagine, we have received client communications from different sides of the spectrum…some wondering how their investments are doing, some wondering whether they should go to cash (this looks like it would have been a bad decision in late March, as of this writing anyway) , and some wondering whether it is time to be more aggressive (as of this writing, this looks like it would have been a very timely decision in late March, and may still be worthy of consideration today). In all cases, we are pleased to address whatever is on your mind. Needless to say, any discussion regarding wishing to be more conservative or more aggressive than in the past should trigger a healthy renewed discussion of your goals, time horizon, and risk tolerance.
A lot has changed over the last couple of months. Our personal lives have been and continue to be greatly affected. Governments and central banks across the world are doing everything possible and imaginable (what I would call the ‘bazooka’ approach) to counteract the inevitable economic contraction associated with lockdowns and strict social distancing measures. The top energy producing countries have also just negotiated and agreed upon a much-needed oil supply cut.
The death toll from the virus continues to increase, however other metrics such as hospitalizations and rate of infections seem to be turning the corner. White House Health Advisor Dr. Fauci recently said that “once you turn that corner, hopefully we’ll see a very sharp decline.” (Source: “Fauci expresses ‘cautious optimism’ coronavirus outbreak is slowing, US could start reopening in May”, CNBC website, April 12)
What will not be turning around soon though is the economy. We are experiencing what is essentially, in my opinion, a self-induced recession as a result of the impact of the measures being taken to slow down the outbreak of the virus. There is currently a hot debate amongst government officials, politicians, and health experts as to when the economy should be re-opened and how should it be re-opened. I suspect that the re-opening of the economy will be done in a slow measured manner and not necessarily on a global coordinated basis. I will address this topic further in the Insights/Opinions from Experts section/hyperlink near the end of this email.
On a positive note, it is possible - and I certainly hope - that we may have seen the worse as far as the COVID-19 sell-off goes. The markets have seen the best of times and the worst of times during the past eight weeks. My previous communication to you was back on Friday March 20th. The stock market actually reached its lowest point the very next business day, i.e. Monday March 23rd.
There is plenty of debate as to whether the stock market will retest that March 23rd low. We heard plenty of experts claiming during the days following March 23rd when the stock market rebounded quite strongly that the stock market was simply experiencing a short term rebound within a sustained bear (declining) market. Some (but far from all) of these experts have since changed their minds. This positive change of heart from some experts seems to make sense since (1) the stock market would currently need to decrease by at least 20 percent in order to drop below the March 23rd low, (2) we seem to have already experienced the worst of the panic selling/forced liquidation phase associated with this COVID-19 sell-off, and (3) as previously mentioned, governments and central banks across the world are using a ‘bazooka’ approach to mitigate the economic impact of the social distancing and lock down measures. The speed and forcefulness of the government/central bank intervention are partly due, in my opinion, to the lessons from the 2008-09 financial crisis being still very fresh on their minds.
What is currently important to remember, in my opinion, when hearing/reading negative economic headlines (e.g. jobless claims, bankruptcies, negative earnings, and sharp decline in Gross Domestic Product) is that the stock market is an anticipatory asset. In other words, the stock market is trying to figure out what the economy will look like in six-to-nine months from now. So, if you hear/read an expert declaring “it’s going to get a lot worse”, please verify if that claim relates to the health crisis, the economic crisis, or the direction of the stock market. As one optimistic market observer recently said: “Markets may get healthier before people do.” (Tim Seymour, Seymour Asset Management, CNBC TV, March 27)
Here is an actual good example of the disconnect between economic news and stock market from a recent headline I read: “16 million people just got laid off but U.S. stocks had their best week in 45 years.” (CBS MarketWatch, April 11)
One should also take into account that the stock market typically reflects the existing level of uncertainty - with high levels of uncertainty (along with elevated levels of fear & volatility) going hand in hand with lower stock prices. So, if you hear/read an expert declaring “today’s high level of uncertainty makes it impossible to invest” please recognize that the stock market has probably already adjusted to a lower level to reflect that high level of uncertainty. This, ironically, often makes uncertain times also great times to invest. As the previously quoted Tim Seymour also said recently, the money is often made “when things go from terrible to just bad.” (CNBC TV, April 9). And to quote from the world’s most famous investor, one should “attempt to be fearful when others are greedy and to be greedy only when others are fearful.” (Warren Buffet, 1986 shareholder letter)
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The following (click on Insights/Options from Experts to open the hyperlink ) Insights/Opinions from Experts offers an extensive collection of interesting insights/opinions on the COVID-19 crisis from various market and economic experts that I have put together, along with additional comments and observations of my own.
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I have run across such a vast array of interesting quotes since my last communication on March 20th, I thought this deserved a special section of its own.
Should you have any questions or concerns, please feel free to reach out. And as always, we encourage you to contact us if there has been an important change in your financial situation.
Wade Brown Wealth Management
April 16, 2020
Disclaimer: 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. The strategies and advice in this report are provided for general guidance. Readers should consult their own Investment Advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change. 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. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © 2020 RBC Dominion Securities Inc. All rights reserved.
