Happy Mother’s Day!

Happy Mother’s Day to all the moms out there! 

Hope everyone had a great weekend and found a way to get out there and enjoy the amazing weather. We hosted successive barbeques at our home this weekend for my mother and mother in law. It is purely anecdotal, but for all the talk of protecting the more vulnerable (older) members of society I am finding that it is my parents and my in-laws that we are finding the hardest to keep isolated. They are the ones that always seem to be out and about and with rules looking to be relaxed imminently there was no stopping Mother’s Day! Our version of a social distancing party basically means that we try to keep everyone in the backyard so nobody can actually see how bad we were at adhering to the rules, but how do you say no to your mom on Mother’s Day?!

That general sense of optimism carried forward into equity markets last week as investors once again ignored first quarter data and chose to focus on the gradual reductions in the pandemic lockdown, and first steps back towards normal. U.S. employment data released last week, was absolutely awful with an estimated 20,236,000 jobs lost in April. To give you some context, the previous worst monthly employment number in the last 20 years was about 850,000 job losses in Feb 2009. That is just the beginning of the bad economic data as we are going to get bombarded with more and more bad news for at least the next 2 or 3 months. Markets expect that to a certain extent and will continue to ignore all that negative data if the forward-looking outlook remains positive. Earnings, unemployment numbers, bankruptcies will all take a back seat to the curve flattening, businesses re-opening and the general geopolitical environment.

The feeling now is that the bottom is behind us. Virus numbers continue to be encouraging, countries continue forward with easing restrictions and re-opening businesses and for right now, the geopolitical sentiment world wide seems to be that we will continue to reinforce and support economies with as much aide and stimulus as necessary to get things moving. Several other alternative and real-time data sets corroborate the bottoming thesis. Apple, for example, tracks the real time movement of individuals and this data shows that activity levels are picking up. Their mobility data suggests not only a pickup in the U.S., but across the world. Greater mobility means greater commerce. The earliest hit countries are also providing positive feedback as to what to expect. China’s economy has suffered some setbacks as it reopens, but each week sees more people riding subways, a few more restaurant visits and an increase in productivity with reinfections being handled at a local level. It hasn’t been smooth, but things are progressing. I am especially interested and excited to see how the re-opening of professional soccer goes in Germany next week!

The cost of this pandemic inspired, policy mandated economic shutdown is steep, but it is an amazing testament to technology companies that we can function at all during this time. The crisis has turbocharged trends already in motion: ecommerce, remote offices, online education, online gaming and streaming. The many different manifestations of a virtual life, now widespread and embraced, will only accelerate from here, along with the software and infrastructure needed to support them. Shopify is now Canada’s largest company, surpassing Royal Bank last week. On their earnings call this week, Shopify said that sales volumes from its point-of-sale terminals for retail merchants were down 71% from March 13th to April 24th but 94% of those lost volumes were made up with on-line sales during the same period. The fact that Shopify clients could replace so much in store volume with on-line sales in such a short period of time, is stunning. It gives me lots to think about in terms of how to take advantage of what the ‘new normal’ will look like and I would urge you to be giving some thought to this too! IT has always been the largest overweight in my portfolios, but there are going to be some profound and long term post-virus implications for the future of technology, retail and real estate that accelerate out of this that we will want to capitalize on.

Having easily assimilated all this week’s data I have come to the firm conclusion that I am pessimistically optimistic on the state of markets right now. I hope that we continue to move forward, but will be genuinely surprised if we are able to smoothly transition back to a fully functioning economy without a few hiccoughs along the way. There is an overriding sense of “we’re all in this together” now, but I am really skeptical that feeling will last. There is going to be a lot of finger pointing and blame apportioning as we claw our way out of recession and count the cost of shutting down our economy, especially as the US elections draw closer. There is more hope than real confidence at this moment in time. It is a fragile market with some self esteem issues that is vulnerable to either an unexpected setback or geopolitical discord.

Strategically, my advice continues to be to invest what you can now, but do it cautiously. Don’t be afraid to take advantage of good deals on good companies, but now is also not the time to be betting on things going straight up from here. Having a well thought out plan and disciplined investment strategy is important in this market!

Stay safe, stay positive and have a great week!
Jeremy

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