Market Insights: Market Commentary
Milestone Wealth Management Ltd. - May 08, 2020
Market developments As more regions worldwide continued easing lockdown restrictions, the optimism surrounding a resumption of economic activity provided a modest lift to North American stock markets. The price of U.S. oil continued its recovery due
As more regions worldwide continued easing lockdown restrictions, the optimism surrounding a resumption of economic activity provided a modest lift to North American stock markets.
- The price of U.S. oil continued its recovery due to increasing confidence that supply cuts would begin to make a difference just as the economy begins reopening. As of Friday, the WTI price was around $24 and the Canadian oil price (WCS) had risen from single digits to around $17.
- The U.S. Treasury Department announced that it will borrow about $3 trillion more this quarter for further stimulus to support the economy. Total U.S. government debt is now approximately $25 trillion.
- The U.S. announced weekly jobless claims of 3.169 million, bringing total job losses to 33.5 million in the last seven weeks. The Government of Canada announced that the economy lost nearly two million jobs in April, although this is roughly have of what was expected.
- The Canadian government announced a $252 million emergency aid package for farmers and food processors, calling it an “initial amount,” as well as $4 billion to boost wages of essential workers. The federal deficit is now expected to top $250 billion this year.
Should this change my investment outlook?
As we’ve discussed, changing your investment plan on a week-to-week or month-to-month basis can be detrimental. That’s why we distinguish these weekly updates from the long-term view we are taking with your portfolio.
Many factors have come into play recently, including the spread of COVID-19, escalating lockdowns, growing government debt, negative oil prices and now, easing restrictions. Yet the market has not always reacted to these developments in the ways many investors expected.
One example of this is history shows that markets bottom out long before earnings do. The chart of the Global Financial Crisis below shows that price bottomed about two quarters before earnings. By the time earnings bottomed in 2009, the S&P500 was up 48% from the lows. If this time were similar to 2009, then based on current earnings estimates bottoming in Q3, it would indicate the bottom of the market was in Q1 (March); of course, these are estimates only at this point in time.
This is why we created and adhere to our process which focuses on your long-term goals. By looking ahead, we are seeking to eliminate this guessing game, and instead create long-term value.