BY DREW FINERTY
How quickly we went from summer to fall. The summer went by incredibly fast and we are now only 13 weeks from 2021 (sorry to say that, lol). Much has happened since my last monthly update and as there will be lots of news ahead with schools re-starting, the US Election, the spreading of the virus on the rise and all the end-of-the-year rhetoric happening, it is a good time to connect.
Markets show some expected pull-back in September:
After an explosive August (+8% on average) on the markets, my expected turn around has been the conversation this month. As I have been saying for some time, all the bad news can not go unabated in the markets forever, even though the economy has rebounded in historical proportions (not surprising since we went through historical contraction from March to April) and the short-lived recession is fading. The summer time back-to-work plans may start to change now that the weather is turning, especially in the restaurant sector, now that patios won’t be as busy.
Working from home has become normal and even though some have returned to the office setting within a percentage of capacity, it is expected most people who can work from home, will continue into the new year and likely for the foreseeable future. Companies that profit through this new way of technology, will continue to lead the markets, although even some of them have come back to earth considering how much growth they enjoyed initially. Unemployment numbers are still very high but improving.
As I mentioned, a 10%-15% pull back from the recovery that only took 100 days is neither unexpected or concerning. I don’t know if my “W” prediction will completely play out, but I believe there is still some minor volatility in the markets until we get through the Election and see how a second wave plays out…but nothing to be concerned for the medium-long term. Lately, I have been hearing of another Letter recovery may be more likely…a “K”…where there is a drop and then some companies recover faster and some others will take longer to get back to where they were pre-COVID. Of course, with interest rates near zero in most countries, fixed income is still a challenge and pushing most investors to equities than they normally would, but this is expected to continue for quite some time.
The Fed in the US and the Bank of Canada have both implied that low interest rates are here for likely another 5 years. The hope is they can target inflation to “average” 2% over that time, but growth will be a challenge.
The US Election:
I really dislike attempting to call an election result, especially in the States. I used to love reading Polls, but in recent years, they have proven quite unreliable and this US Election could be similar. A few things I am hearing from my Portfolio Managers and Fund Analysts, is 1) there is typically more volatility leading up to the election due to all the speculation and 2) history has shown it doesn’t matter who wins, the markets always rebound shortly after and the year after an election, the markets have been more positive than negative, most of the time.
A divided government could make it difficult getting a decision in Congress over future additional Stimulus packages, so the polling showing a Democrat sweep, could be good on that front. The concern over the Democrats raising taxes to pay for all the debt, is considered unlikely, as it would be seen as political suicide during a pandemic/recession, so the expectations is that is not likely in the first term, at least. A Trump victory, could also see further trade spats, especially with China, and it appears Biden will be more “dovish” with them and healthcare, while being more “hawkish” with fossil fuels & pipelines. In any case, best to expect some market turbulences over the short term, but look forward to a better tomorrow.
Stay safe, keep your distance & keep washing your hands:
From all I have been reading, it appears this health environment (and working from home) will continue into the new year, so please keep yourself safe and do all you can to help slow the spread of Covid. We made a decision last week to keep the office closed until the end of the year, but I am happy to meet at your home, a café patio or by Zoom/phone when you need to discuss your portfolio…I will be in touch over the next few months to plan for the end-of-the-year expectations, update your KYC and discuss any opportunities that may serve your portfolio…take care!
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