Unfortunately, economic projections from Jerome Powell, Chairman of the US Federal Reserves, on Wednesday the 13th, resulted in fairly substantial negative returns this week.
Mr. Powell, discussed his view that the pandemic will have long term adverse economic effects, including his view that the markets are overvalued due to the various stimulus packages businesses have received (source: NY Times – Stocks Fall as Powell Warns of Lasting Economic Damage). David Tepper, a hedge fund manager, who is the founder of Appaloosa Management, echoes this, indicating that this is the most overvalued market he has seen since 1999 (source: CNBC Halftime Report – May 13 2020). The fear of a second wave of infections as States and Provinces begin to open, also affected the markets (source: Reuters – GLOBAL MARKETS-Fear of coronavirus second wave stalks stock markets).
The projected volatility and market turbulence that Mr. Powell and Mr. Tepper are discussing is something that investors need to be aware of as the markets continue to react to this unprecedented situation, in order to ensure their investments are best suited for this market environment, while still meeting their investment objectives. However, although the news and returns this week were negative, it is important to realize that we have still seen a generally positive market bounce back over the last several weeks. The following charts show the returns of several market indicators since the beginning of 2019, with the peak highlighted in each case, in order to show the recovery to date. In addition to the TSX, S&P 500 and the DOW JONES, I have included the DEX index as this shows the recovery of the Canadian bond market, which most of you will have as a portion of your diversified portfolio.
Other developments this week include:
- Trudeau announced that the wage subsidy (CEWS) will continue through August (source: Financial Post – Canada to extend wage subsidy program until end-August -PM Trudeau)
- A new stimulus package, in the neighbourhood of 3$ trillion USD is being debated in Congress (source: Global News – Pelosi unveils new $3T U.S. coronavirus aid bill, warns inaction more ‘expensive’)
- Canada is looking to extend the border shut down with the US, which is set to expire on May 21 (source: CTV News – Canada wants to extend U.S. travel ban)
The impact of these developments, as well as the statements from the Federal Reserve regarding the ongoing impact of the virus, can be found here.
Additionally, the weekly returns are found here:
| Market Index | Returns Week of May 11th |
|---|---|
| TSX | -2.19% |
| S&P 500 | -2.26% |
| Dow Jones | -2.65% |
Source: Yahoo Finance
Please let me know if you would like to have a call to review your investments and how they have handled this ongoing crisis. Lastly, although this is anything but a typical Victoria Day weekend, I hope you all enjoy the holiday, and are able to unwind over the long weekend.
