The month of May marked the start of the gradual reopening of the domestic and global economy, slower growth of new COVID-19 infections, and continued government stimulus, all of which boosted investor confidence throughout the month. However, moving forward, there is still a lot of global economic and political uncertainty and this highlights the need for diversification and exposure to different asset classes, countries, and sectors.
Major Economic Commentary
*Equity Indices - FTSE Global Indices in CAD, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index based on end-of-day data for the Total Return Index as at market close 29 May 2020.
In general, global markets continued progression upward for back-to-back months. Canada has been hit heavier than other developed nations due to headwinds in the oil and energy sector. Emerging markets have also been hit due to their reliance on trade and exposure to developed market currencies.
China and US trade tensions creeped back into the news cycle this month and throughout the pandemic President Trump has been very critical of the role that China has played in the spread of the virus. When the two parties can return to the negotiating table, a lot of work will be required to repair the relationship while finalizing a trade deal. As these negotiations develop, we could expect to see tariffs return adding another level of uncertainty to markets down the road.
It is important to understand that financial markets are a forward-looking machine. This intuitively makes sense, as investors we allocate capital to earn a return in the future. As markets are more concerned about the future than they are about the present or the past, it is important to understand the market’s ability to “price in” uncertainty. This means that risk events we are concerned about arising in three months, for example, are likely priced in today. This can be observed by looking at recent stock markets. They started their decline in advance of the global lockdowns and have started their recovery earlier than the global economy.
The outlook for the remainder of the year is uncertain at this moment. Our best advice to navigate these times is to keep it simple and stick to the principles of investing. This means ensuring that your portfolio reflects the goals you want to accomplish while maintaining a long-term perspective, as markets have an upward bias in the long-term. Rebalance your portfolio when one asset becomes hot and another becomes cold, as this will ensure your assets are within their target and it allows investors to trade efficiently by buying low and selling high. Lastly, the most important fundamental during this time is DIVERSIFICATION. Having different asset classes, geographies, and sectors within a portfolio will spread an investor’s risk exposure and prevent speculation in one type of asset. These fundamentals are the best tools at our disposal for long-term success and are part of our core investment philosophies at Invisor.
To summarize, markets have picked back up in the past few months. By no means does this mean that we are out of the waters. We expect volatility to persist and even elevate, and we expect those who stick to the fundamentals and avoid fear driven selling to succeed.
As always, enjoy the start of your summer and we hope you can find new ways to stay happy and healthy as we adjust to the “new normal”.