Happy Monday! Hope everyone had a good weekend and is adapting to phase 2 of the reopening of our province!
I was happy to have some friends over this weekend for the first time in two months, but it is going to take some time to readjust to being social. Sometime around 11pm my body was telling me it was time to head for bed and the realization that I couldn’t just sign out of a zoom meeting or hang up my phone was actually jarring to me. It is a lot harder to herd people out of the house than it is to hang up on them!
Decided to go to bi-weekly market updates for now. Frankly, there just isn’t a lot going on currently in terms of impactful news to report. There is a big disconnect between the state of the economy and the state of the stock market. The 10-year Treasury yield at 0.65% is hovering near its all-time low, reflecting a rather pessimistic view of deflationary forces left over from a deeply damaged macro economy. In contrast, the broad-based stock market surged higher from its March 23 low and recovered more than half of its losses in April. The stock market bounce lends the impression that we are on the verge of a vigorous V-shaped economic and earnings recovery and things will be smooth sailing from here. The whipsaw action is confusing to investors and advisors alike. We’re supposed to learn from our experiences, but the main thing I have picked up from this past couple of months is simply the confirmation that there is no predicting the market on a short-term basis! May has continued to be volatile and slightly positive, but we have basically been trading sideways for three weeks as markets await something to react to. Last week was positive based on good news on the vaccine front from Moderna.
Economic numbers in terms of unemployment and GDP are terrible, but the Covid curve is flattening, businesses are easing into re-opening and governments continue to pledge to keep hosing the economy down with money as long as needed. I have actually developed an involuntary tick that manifests every time I see Trudeau pop up in the media as I know that with each appearance he makes there are more millions or billions being given out to the varied sectors of the Canadian market. It does all eventually end up as money circulating in the economy, but I can’t help but wish for a little more patience and thought as to the longer term costs of mortgaging our future versus the short term benefits of just throwing money at a problem in hopes that something sticks. I’m sure Warren Buffet has a quote for everything, but this one seems particularly apt to me “No matter how great the talent or efforts, some things take time. You can’t produce a baby in one month by getting nine women pregnant.” I don’t know the answer on how to restart a voluntarily enforced economic shutdown in the midst of a pandemic, but I don’t think trying to impregnate every single Canadian in the country is either possible or effective, no matter Trudeau’s enthusiasm for the task!
We are at a point now where we need some patience. Patience to see if we have flattened the curve, patience to allow the already pledged stimulus and aide to start working its way through the economy. Markets are looking for something to react to. A stuttering re-opening of the economy is already priced into expectations, the key is going to be avoiding any critical mistakes. Two steps forward, one step back is expected; one step forward, two step back will eviscerate confidence. If that happens, don’t panic as it just means that the recovery is delayed, not stopped, and we are going to be given more opportunity to add quality stocks at steep discounts.
While broad based markets have recovered just over half of their losses, it is a bit misleading in that healthcare and IT are fully back to pre-pandemic prices and skewing the numbers. Many other sectors – travel, tourism, airlines, energy, banking are still trading at 50% discounts. The market is segmenting into winners and losers. Really simplistically, think of it as Amazon is picking up all the lost business of shopping malls. Makes it a bit tricky in that the discount is in the beat-up sectors, but Covid 19 is not really creating new ideas, merely accelerating what were already verifiable market trends. We want value, we don’t want cheap and we also don’t want to bet against clear winners either. A more measured approach is needed right now when investing new dollars, rather than just buying anything that still looks cheap.
We may not have a play book for how to deal with a global pandemic or the re-opening of an economy, but we do know the secret to be a successful investor. We need a plan, we need discipline, we need a long-term outlook, but more than anything, we need staying power. It is easy to have “starting power”. Starting a new diet or exercise plan is easy – it is always the sticking with it part that is so difficult. Same with markets and investing. The better we are at identifying trends and putting together an investment philosophy anchored in wisdom and discipline, the more likely we are to stick with the plan; but, the reality of the matter is that time in the market is more important than timing the market! Be adaptable, but be consistent and stay the course. I hope that calm seas are ahead of us but no matter what lies ahead in the short term, staying power is going to see us through whatever may come our way.
Stay safe, stay healthy, stay the course!Jeremy
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