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Market Outlooks
Coronavirus vaccine developments are extremely welcome news
The global economy hailed a series of positive developments on the vaccine front at the start of the month. Pfizer-BioNTech were first to announce successful Phase 3 trials of their vaccine with 95% efficacy. The Moderna and AstraZeneca-Oxford vaccines also reported positive results. No vaccine has yet received regulatory approval for mass public use.
Market Outlooks
The stock market and the economy: Two different animals
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COVID-19 has cut a swathe through the world economy thanks to government mandated lock-downs and restrictions. No business closes its doors voluntarily and no individuals enjoy confinement to “barracks” for months on end. It is therefore essential that there is an appropriate reckoning when the pandemic passes.
Market Outlooks
The Fed’s new framework and its evolving reaction function
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Amid an accelerating election season, ongoing pandemic and a return to partisan gridlock, the Federal Reserve (Fed) has been a bit less prominent in the news cycle lately. However, at the central bank’s annual August retreat in Jackson Hole, Chairman Jerome Powell announced amendments to the Fed’s Statement on Longer-Run Goals and Monetary Policy Strategy, which had been largely unchanged since 2012. At a recent mini-forum on this topic, we discussed the significance of this change and its implications for future Fed policy and for investors.
Market Outlooks
Turning up the heat on a boiling pot
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The passing of Supreme Court Justice Ruth Bader Ginsburg has created a vacancy in the U.S. Supreme Court with only weeks until the November election. As the country awaits President Trump’s nominee, pundits on both sides of the aisle are claiming this process will strengthen their election chances. We see this process as primarily exacerbating the partisanship of U.S. voters and it is unclear which party will able to drive greater voter turnout or sway more independents
Market Outlooks
The great disconnect between the economy and the stock market
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We concluded our March quarter Perspectives with the comment: “Let’s just hope we now don’t have a gigantic bounce in share prices fuelled by the central bank injections, pushing them back to bubble levels. Or, are we, once again, being naïve?” Yes, we were being naïve. The bounce occurred and it had nothing to do with investment fundamentals.
Market Outlooks
What’s next for China?
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As the first country to tackle COVID-19, China has institutional investors globally wondering about the local situation – and what it means for their portfolios. June Lui, Portfolio Manager, BMO LGM Investments, gives an on-the-ground assessment of China’s economic backdrop and the impact on stocks.
Market Outlooks
The enemy of a major economic slump is debt
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This is a hard commentary to write. The situation is obviously very grave but also extremely fluid and no one has any special or privileged insight as to when a degree of normality may return. All pandemics end but it would be foolish on our part to suggest that it will be over within a few months. What is clear is that the world is tumbling into a serious global recession with significant unemployment. When both supply and demand collapse the end result is obvious and unavoidable. Governments and central banks have thrown several kitchen sinks at the crisis but with a world in lock-down it does little to lift economic activity. Expenses go up but incomes go down.
Market Outlooks
Virus starts with v but ends with u-shaped
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2020 began largely as we expected from an economic perspective, but as the first quarter ended it was difficult even to remember what “normal” economic times looked like, that is, before COVID-19 mushroomed and became a global health crisis.
Before the situation deteriorated in late February, many economists expected the economic effects of the virus to be primarily felt in the first and second quarters with a “v-shaped” recovery to follow. Now many expect a “u-shaped” recovery occurring perhaps by year-end. Economic indicators can lag the headlines, but U.S. unemployment had already begun to spike as the first quarter ended with more to come, likely climbing to double digits as large segments of the economy remain shut down in an effort to contain the virus. We have seen second-quarter annualized GDP estimates ranging from -5% to -30%, but the unprecedented combination of a pandemic and the modern global economy makes this very difficult to call. The numbers will be painful, regardless of the precise magnitude. In terms of the human cost, the pain is already acute.
Market Outlooks
Corporate credit spreads widened aggressively in March 2020
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Credit markets have seen extreme repricing over the past month as a result of the market stress caused by coronavirus and its impact to the economy. The period through March 26 saw some of the most aggressive corporate spread widening in history, with the worst days experiencing almost twice as much widening as any day in 2008. Global investment grade corporate credit spreads reached 340 basis points after having started the year at 102, and we saw global high yield spreads widen past 1,000 basis points as an index, which is generally the level considered the threshold for individual bonds to be considered part of distressed indices.
Market Outlooks
Examining the relationship between social distancing and economic activity
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As the global spread of COVID-19 continues, the United States’ timeline to practice social distancing has now been extended through the end of April. The crisis continues to evolve, leading to questions of how long the social distance measures will remain, how severe will the infection rate get, and when will peak cases be reached. Gauging the length of these measures is crucial to anticipate the economic impacts to U.S. businesses and consumers.
Market Outlooks
The meaty realities of food production
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Initiatives such as Veganuary and meat-free Mondays are a sign of how patterns of food consumption are changing. People are increasingly aware that their eating habits can come with dramatic environmental and social costs. As investors, we are particularly interested in how companies are managing ESG risks in both their operations and supply chains, as well as whether they are seeking opportunities in high-growth areas such as vegan protein.
Market Outlooks
The state of the municipal market
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What caused the extreme municipal market volatility in March 2020? In a nutshell, fear and panic. But that’s understandable in the face of a virulent, deadly enemy that you can’t see and is difficult to contain without mass testing. The unknown is menacing, and investors reacted as they have historically — by raising cash and improving liquidity. In many ways, it is similar to the 2008-09 crisis when the bursting housing bubble caused an indiscriminate rush to sell any assets other than Treasuries. What was shocking this time was the unprecedented speed of the sell-off, and the ensuing recovery. Even after 30 years in the business, it was quite alarming.