Let me help you navigate through this COVID-19 Pandemic.
It’s going to be a volatile world, maybe for the next decade. You want income generating securities, structural growth stories and you need to look past the short term.
Another day, another record-breaking rise in Canadian COVID-19 cases. Meanwhile, south of the border, several states have also seen a record rise in illnesses, while the White House has become a coronavirus hot spot of its own. The way I see it, it is hard to shake the feeling that, at some point, we will be all be back in lockdown, unable to leave our homes.
No one wants to relive March, when stocks fell by about 35%. The last month doesn’t instill much confidence either: Since September 2, the S&P/TSX Composite Index has dropped by 1.3%, while the S&P 500 is down by 2.72%, in part because of case-count concerns.
Given the rising caseloads and the unpredictability of both the virus and the upcoming U.S. election, the more active investors among us may be wondering if they’re properly positioned for a prolonged pandemic.
Two scenarios are possible: #! Total lockdown and, #2 Tighter restrictions, but open economy.
In this scenario of "Total Lockdown", markets will be volatile over the next few months, even years. If you think quarantine is coming again you will want to continue holding to your stocks that did well over the last few months. The COVID-19 winners are tech companies like Facebook, Amazon and Apple, and tech companies that facilitate stay-at-home work. Consumer staple companies, such as Walmart and grocery stories have done well too.
With bonds basically earning investors next to nothing, there will also be more interest in dividend payers that increase their yields every year. Growth will also outperform value generally, but especially during a full lockdown. Many of the value plays today are businesses that may not return to their former glory for a while, if ever.
In this scenario of "Tighter Restrictions, but Still open Economy", much of the above applies here too. People will still be working from home and stay-at-home tech will continue to do well. There will also still be a lot of online shopping happening, thus not helping shopping malls and traditional retailers. But if the economy is allowed to move forward, then selling off some of the overachievers and buying some cyclical stocks that fare better in an improving economy could be a smart move. That includes financials.
While bank stocks have taken a hit as interest rates have fallen, and with rates staying low for a long time that will continue to be a headwind. Industrials, such as autos and auto part makers, and leisure, including vacation travel, could bounce back over the next 12 months as well.
What will really happen is all about "stimulus"
There is one thing that could keep stocks buoyant regardless of the scenario: stimulus packages. With both the Bank of Canada and the Federal Reserve doing their part to ease monetary policy through quantitative easing and near-zero rates, it is up to governments to keep money pumping into the economy. One reason why stocks have done so well so far is because of the money stimulus has put into people’s pockets, such as through the Canada Emergency Response Benefit here, or the $1,200 stimulus cheque in the U.S. If that money dries up, then markets will surely react negatively. If it continues, then markets could stay at least stable, if not rise again.
Unfortunately, it is unclear as to where things go from here.
If scenario #1 occurs, then governments will need to pass bigger stimulus packages than in scenario #2.
How far will they be willing to go?
All of this uncertainty makes it difficult to know what to do but, given all that is going on right now, sticking to growth stocks, income-generating securities and staying focused on the long term is a must. Whatever what will happen, it is going to be a very volatile world and this, maybe for the next decade.
Michel Ouellette JMD, ll.l., ll.m
Systemic Strategic Planning / Crisis & Reputation Management
In these days of Pandemic, let me help you navigate through this COVID-19 Crisis. Also, there is a better networking alternative than Meetup. Join our Virtual Business Group and share your concerns.