Happy November!
We continue to live in interesting times. I am writing this right now with Christmas music going on in the background as my wife and kids are hauling out Christmas decorations already. I normally fight hard for no Christmas trappings before December 1st, but when Bonnie Henry announced two weeks of increased social distancing rules and more shutdowns, my wife turned to me and said “Get the Christmas tree from the basement and don’t say a word”. If COVID has taught me anything it is the importance of being adaptable, so this year our tree is going to be up by Remembrance Day!
I delayed getting this month’s commentary out right at the beginning of the month as I hoped to be able to speak with some clarity as to the US election impact on markets. I was sort of expecting any clear result to cause the markets to rally but was worried that a really tight result with a contested transfer of power would cause markets to dip. Add that call to my column of things I got wrong this year, as confusingly enough markets had a strong first week of November with things being up across the board despite all the uncertainty still in play. I do take some consolation from the fact that I am not alone in not having a clue as to what is going on right now. A bit lazy of me but this synopsis comes straight from Guardian Capital’s US Post Election Commentary.
“Against the November 3 festivities, markets have been volatile. Bonds have rallied and the curve has bullflattened while the US dollar has firmed — responses that would be characteristic of the uncertainty trade. Simultaneously, equity futures initially rallied before turning negative as the results starting coming in but then reversed course — S&P 500 futures are up just under 1% while those for the NASDAQ are up more than double that. The arguments favouring a somewhat counterintuitive move are that the high-quality mega-cap tech names are drawing safe-haven flows, making it not inconsistent for heightened uncertainty. As well, the potential absence of a “blue wave” means a reduced likelihood that significant regulation in the tech sector is going to materialize anytime soon, while a rise in corporate income taxes may face greater impediments. Of course, political gridlock may inhibit much-desired fiscal stimulus. As well, the heightened uncertainty over the election outcome and the potential for a contested result could reduce the likelihood of a COVID-19 relief package in the near-term by the current Congress as its term winds up.”
I really just want to prove that I am actually reading reports and research and not just making stuff up, as well as garner a bit of sympathy as to the nature of some of the reporting I am trying to interpret! While it is couched in more technical terms and financial jargon, bottom line is analysts and economists are all a bit confused at this point! Could be worse, I guess, I could be a pollster! Looks like a Biden win and Republicans will hold the Senate but still lots of story to play out from the election and I do expect there to be heightened market volatility until things get settled. I will actually be a bit sad once the election story reaches a conclusion. Partly because it is absolutely fascinating to watch and partly because it will be 4 more years before I hear the word “gubernatorial” again as it only seems to pop up during elections and it causes my inner adolescent voice to chuckle every time I hear it. All I can think about is whoever wins the gubernatorial race becomes “head goober” of the state. I also think that once the election news plays out, we are going to enter a space where there will be a dearth of positive news. Feels like the economy is as open as it is going to get until a vaccine gets into play. No more easy gains month to month from jobs or manufacturing coming back online as with new case rates at an all time high we will be lucky to keep things as is for the foreseeable future.
I continue to believe that cheap money, strong fiscal and monetary stimulus and people and business’ ability to innovate and adapt will be good for portfolios over the medium term. Still lots of good companies trading at steep discounts to pre COVID levels and the acceleration and forced adaptation of trends in ecommerce, virtual workplace, telehealth etc… mean that some sectors are making buckets of money during this time. I would consider it a good time to invest, but as the old adage goes, “make sure you don’t test the depth of the river with both feet!”. Key is still a disciplined, balanced approach to portfolio construction that offers allowances for the fact that mistakes will be made.
Happy to talk with you anytime about markets in general, your portfolio specifically, or if you have any questions on the conversion process Worldsource Securities is going through later this month. Stay positive, stay safe, stay disciplined!
Jeremy
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