03/26/2020
Letter to clients during the COVID-19 crisis - questions please reach out!
To our valued clients,
We are keeping with our promise to maintain a constant line of communication to you, so you are up to date on any new information we learn.
What we have learned since the last communication:
• $107 Billion-dollar relief package passed by the Canadian Federal government
• Ontario government looking to pass a $17B aid package to help offset financial impacts from COVID-19
• U.S. Senate and soon to be US Congress pass a $2.2 Trillion aid package
• As of today – March 26th – we had 2 consecutive gains on the S&P 500 / Dow Jones / TSX
• Jobless claims report, reported on March 26th, in the US hits 3.28 Million people – Morgan Stanley forecasted 3.4 Million, so lower than expected, yet the highest in history
• 500,000 people in Canada, in the first week after March break, applied for EI claims
How do I navigate through this storm?
For the past handful of weeks, we have been incessantly speaking with fund managers and economists trying to get a pulse and understanding on where they think the market is headed. The way that they are breaking this down is similar to a natural disaster rather than a financial one. We keep hearing over and over again, this is a health crisis with a financial impact, not a financial crisis. Therefore, the quicker we get this virus under control the quicker this economy and the markets will rebound.
Some positives:
• This is the quickest the Senate and soon to be US Congress has ever passed a financial aid bill of this magnitude, which ends up being 10% of US GDP. To put it into perspective, it took months to pass a bill of this magnitude in the 2008/2009 financial crisis.
• This is the quickest the Canadian Federal government, unanimous support, has passed a financial aid bill – it should be looking to go through the Senate and for Royal Assent within weeks, again much faster than the 2008/2009 financial crisis
• Money should start to flow into both Canadian and American hands by the beginning of April – which should stimulate the economy and hopefully once quarantine ends, get people back on their feet and back to work
Information on the market:
• Most analysts state that the markets have priced in a recession – which technically means 2 consecutive quarters of negative GDP growth
• Most analysts are saying the market has priced in up to 3 quarters of negative GDP growth AND 3 quarters of negative earnings growth
• You will be hearing a lot of metaphorical statements regarding the market like “This will be a ‘U’ recession, or a ‘V’ recession….” In all likelihood, this will actually be more like a ‘W’ – what does that mean?
o When the market drops and stays down, then recovers it’s like a letter ‘U’ - that was what we saw in the 2008/2009 global financial crisis.
o When the market drops, and shoots immediately back up, that is like the letter ‘V’ – this is what we saw in Q4 of 2018.
o In a ‘W’ market, we see more volatility at the bottom, acting like a heart monitor. So, this will likely be more of a rollercoaster initially before we start to head upwards.
• In April’s earnings report watch for a “Kitchen Sink” report from companies (remember this has already been priced in) – this is where CEOs/CFOs throw every piece of bad news including the “Kitchen Sink” blaming it all on COVID-19
• Analysts feel, if containment follows the same as China and other countries who had the virus first, the market should be back to normalcy by the end of the year.
• 80% - 90% of the negatives have been priced into the markets – the other 10% - 20% you may ask? It all depends on how long this goes, if we follow other countries, and adhere to social distancing measures, May 2020 is what they are expecting.
As always, if you have any further questions please feel free to reach out.
We hope that everyone is doing well during these times. Please stay safe and healthy,
Yours Truly,
The C.R. Smith Financial Team
