Canada and the world continue to address the COVID 19 health pandemic, while the USA has shifted its focus to a growing movement regarding race relations and the protests that have occurred because of this.
With the re-opening of economies still proceeding in a generally positive manner, the markets have responded with a strong week of returns. In Ontario for example, despite the recent uptick in cases seen in late May, Doug Ford has signaled a move to the second phase of re-opening.
Some developments in Ontario this week with respect to the health pandemic are:
- Hospitalization numbers have been steadily declining. As of Thursday, there were 776 people with confirmed cases of COVID-19 in Ontario hospitals, the lowest number since April 14.
- The number of long-term care homes with outbreaks of COVID-19 is decreasing. As of Thursday, there were active outbreaks in 89 homes, the fewest since mid-April.
- Ontario’s labs completed 20,822 tests in the 24 hours leading up until Thursday morning, more than any day during the pandemic.
Source: cbc.ca – Mike Crawley: Ontario considering Stage 2 of reopening despite steady stream of new COVID-19 cases
We can see the new cases in Ontario here:
Additionally, this Friday, Justin Trudeau announced a $14B stimulus package to help as provinces re-open (source: finance.yahoo.com – Shruti Shekar: Trudeau commits $14 billion to support provinces with reopening). At the same time, in the US, the Senate confirmed an updated version of the payroll protection program, which will help small businesses keep people employed (entrepreneur.com – Mat Sorensen – New PPP Law Extends 8-Week Period and Reduces Percent Payroll Cost Rule). The re-opening, as well as the announced stimulus, helped bolster the markets this week, with a particularly strong day occurring this Friday.
And overall returns for the week are:
|Market Index||Returns Week of June 1st|
Source: Yahoo Finance
Although these returns are exceptional, not all factors indicate that the markets, as well as the economy in general, have normalized. First off, while historically, market returns have been blind to civil unrest (source: fortune.com – Anne Sraders: The stock market has a long history of ignoring social upheaval), in this instance, the concern is that these protests are likely to cause an increase in COVID 19 cases as by design, social distancing is not possible while at a protest (Source: theguardian.com – Richard Luscombe: Fears grow of US coronavirus surge from George Floyd protests). Additionally, by returning to the VIX and its futures contracts, we see that analysts project that the VIX will hover around the high 20’s throughout the remainder of the year and into 2021 (source: cboe.com – vix futures). As discussed in several updates, when the VIX is over 20, the market is considered to be in turmoil. With VIX futures well over this value going into 2021, this indicates that analysts assume this market unrest will continue for the foreseeable future.
In general, what we are seeing are exceptional returns, with the specter of uncertainty and fear on the horizon. As such, our recommendation remains the same. Ensure that your investments are as diversified as possible, while sticking to your investment philosophy. This will allow you to participate in the great returns we are currently seeing, while still protecting against any future volatility.
If you would like to discuss this market update, or any other aspect of your financial portfolio, please let me know so we can schedule a time and I can prepare a review.