The Re-Opening Phase, Stock Market Rally and USA/China
Caerus Wealth May Commentary
Lately, it appears that people on both sides of the border are more interested in the re-opening phase of the economy than the fear of contracting Covid-19. After all, cases in Canada and the U.S. are trending lower and the number of cases requiring hospitalization are following suit. With the virus taking a back seat, we find ourselves revisiting some of the older themes from the past that typically included Trump, China and the economy. As much as we are all looking forward to gaining back some normalcy, it is important to keep vigilant and objective both in our actions but also regarding how we go about making investment decisions. Let us take a closer look at some of the key components impacting our lives, the economy, and the markets.
On Sunday May 17th, the Fed Chairman Jerome Powell gave an impressive interview with 60 Minutes encouraging investors to remain optimistic about the U.S. economy and its’ recovery. He spoke with a confident tone and reassured the public that they would continue to help support the economy through their vast measures which often means more stimulus and asset purchases. Over the 2 weeks that followed, the markets rallied over 5% (Source: Stock Market Updates: CNBC, May 19, 2020) and have signaled some strength as we filter through the risks and opportunities of the current market.
There is no doubt that there continues to be a significant disconnect between the stock market and the economy. After-all, when you look at metrics such as the U.S. unemployment claims (40 Million in the U.S. as of this week equating to 1 in 4 people)(Source: New York Times, May 28, 2020) sluggish consumer spending (falling 13.6% in April) (Source: Business Insider, May 29, 2020) and a falling GDP in the U.S. which could be as low as low as -40% for the second quarter of 2020, it would make anyone pause and question the current environment. The recent protests in the U.S. cities may perhaps be indicative of the state of the morale of the younger generation that are feeling the remnants of an economy and society that is very disconnected with the stock market.
With that said, we are also looking at the price movement of the market and some of the data is quite compelling. The first notable statistic is the S&P 500, for the first time since the beginning of the Covid-19 pandemic has surpassed its 200-day moving average. This is important as it signals a bullish trend that often tend to a higher index to hit new all-time highs. In addition to the 200-day moving average, we have been paying close attention to the breadth of the market which is represented by the number of companies in the S&P 500 index that are above their 50 day moving averages. This week we have seen this breadth across over 90% of companies held in the index (Source: Yahoo Finance, May 30, 2020) which also is a very telling point of data. By combining both trends, as measured by the S&P 500’s relationship with its 200-day moving average and the percentage of stocks trading above their 50-day moving averages, we are encouraged with more confidence that the strength within the market could very well be signaling the beginning of a new bullish market.
Caerus Private Wealth Portfolios
Last month, we began to slowly enter the market by allocating 12% of our portfolios to two highly effective structured notes. So far, we are very pleased with their performance and feel strongly about the opportunity they present for our clients in the short and long term. In addition, we have been carefully monitoring new opportunities that are beginning to offer very attractive risk/reward characteristics, and if things continue to remain favorable, we will allocate across the portfolios in the coming days or weeks.
U.S.& China Trade: In the upcoming days and weeks we will be closely monitoring the U.S. & China trade chatter. For the time being, the situation continues to deteriorate. On Friday, Trump curtailed its relationship with Hong Kong and used some strong language towards accusing China for the spread of the virus and its mishandling of Hong Kong. The markets have so far shrugged off this news as there were no talks about current or future sanctions, but those cards are still on the table.
New Covid-19 Cases: We will be keeping a close eye on the new cases of Covid-19 especially in U.S. cities that have re-opened aggressively as well as areas around the world that are experiencing a surge in new cases including Brazil, Iran, India and Africa.
Protests in the U.S.: The protests in major U.S. cities have continued over the weekend. We expect the protests to become less violent over the next week but recognize that we are in an unprecedented time of high unemployment and complacency which may add more fuel to the fire. These gatherings could potentially contribute to the spread of Covid-19, which may lead to a future second wave.
As your trusted Portfolio Managers, Caerus Private Wealth and its team are available to address any questions you may have. Stay safe!
Terry Fay, Director, Private Client Group, Portfolio Manager
Kian Ghanei, Director, Private Client Group, Portfolio Manager
Caerus Private Wealth – HollisWealth, a division of Industrial Alliance Securities Inc.
700 – 609 Granville Street, Vancouver BC V7Y 1G5
T: 604.895.3316 | TF: 1800.665.2030 | F: 604.682.0529
terry@caeruswealth.ca | kian@caeruswealth.ca
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This information has been prepared by Terry Fay and Kian Ghanei who are Portfolio Managers for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Terry Fay and Kian Ghanei can open accounts only in provinces in which they are registered. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.