COVID-19 Market Update: Amid Economic Recovery, Turbulent Waters Ahead
The week finished off with most major indexes in positive territory reversing four weeks of losses. While the third quarter recorded robust gains, September ended with the first negative monthly return since March. For September, sector performance witnessed the energy sector as the big loser in all major indices, down double digits at 11.03% in Canada, 14.51% in the US, and 12.11% in Europe. For the week ending, oil dropped 8% to close at $37.01 and is down over 39% year to date, causing a significant drag on the TSX. The sector leader year to date, Information Technology, was also weak during the month and ended in negative territory as leadership for the month rotated to Consumer Staples and Discretionary in both Canada and Europe, whereas in the US, Materials and Utilities were the leaders.
Politics dominated investor sentiment as mixed signals emerged from US House Speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin over negotiations concerning the next stimulus package. The main sticking point seems to be the funding for state and local governments impacted by falling revenues from the pandemic shutdown. The Democrats want to provide fiscal stimulus to prevent layoffs. In contrast, the Republicans think the majority of the stimulus would end up in primarily democratic jurisdictions where, in their opinion, the past mismanagement resulted in bloated bureaucracies, pensions and benefits. Indeed, all defined benefit pensions in Democratic and Republican cities alike are in desperate need of reform. It is generally accepted the asset/liability shortfall is in the trillions of dollars. The Republican package totals $1.6 trillion, and the Democratic package fell to $2.2 trillion. However, the reduction is not seen as a reduction because funding for state and local governments, while cut in half, also only covered only one year rather than two years. What is likely to happen is targeted relief for the packages everyone can agree with. Friday, Nancy Pelosi announced the House would consider a package specifically for the airline industry, which is expected to lay off 32,000 if government assistance is not forthcoming. News that President Trump and his wife contracted COVID also added some concern and sent a tremor through the markets but became somewhat calmed as several other top officials tested negative.
Economic news during the week is indicative of a slowing rebound. The Markit PMI (Purchasing Managers’ Index) was slightly lower, 53.2 versus 53.5 for August. The ISM Manufacturing Index came in lower than August at 55.4 versus 56 and the expectation of 56. The first-time unemployment posted an 837,000 number but was suspect because California announced it has a two-week pause in processing claims. Continuing claims fell by 980,000 to a seasonally adjusted 11.8 million. On Friday, the last jobs report before the election was an unimpressive 661,000 new jobs against a Wall Street expectation of 800,000. The unemployment rate fell to 7.9%, the lowest level since the pandemic. It is interesting to note that private-sector jobs grew by 877,000 but were off-set by a decline in public education jobs at local schools and state colleges as most have moved to online classes. Many companies have voiced concerns over the growth sustainability, considering the disruption from the pandemic.
This US election is like no other we have witnessed. We have a global economic slow-down induced by a significant medical crisis with two political parties in the US (and in most other countries) where extremism on both sides contributes to the general economic uncertainty, making it difficult for businesses to plan and invest for future production. Coupled with unsustainable debt levels, monetary policies, while short-term helpful and necessary, have caused major distortions in asset pricing models and social unrest. It is hard not to believe we face turbulent waters ahead.
|Week||Month: 30-Sep||YTD: 02-Oct|
|S&P 500 (USD)||2.27%||-3.80%||5.57%|
|Russell 2000 (USD)||4.43%||-3.34%||-7.74%|
Important Information:Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.