Market Insights: Market Commentary
Milestone Wealth Management Ltd. - Jul 24, 2020
Macroeconomic and market developments The number of confirmed COVID-19 cases worldwide surpassed 15 million. The U.S. continued to struggle to contain the spread of the virus, with California taking over from New York as the state with the highest nu
- The number of confirmed COVID-19 cases worldwide surpassed 15 million. The U.S. continued to struggle to contain the spread of the virus, with California taking over from New York as the state with the highest number of infections. Other global hotspots include Brazil and India. Restrictions on gathering and business activity continued to be relaxed in many regions of Canada based on low infection rates.
- North American equity markets moved marginally higher as companies reported mixed earnings results and various coronavirus vaccine trials in the U.K., Germany and Canada reported continued progress, but fell later in the week as confidence in the economic recovery stalled.
- US West Texas Intermediate oil finished the week around $41, with Canadian WCS oil trading around $30. Gold finished the week around $1,900 and silver around $23.
- The U.S. government said it was considering a program to provide unemployment assistance for workers for the rest of the year on a reduced basis. In Canada, the government extended wage subsidies for employers still struggling with the business impacts of the pandemic to the end of December.
- US-China tensions mounted with a very accusatory speech from US Secretary of State Mike Pompeo and by China ordering the US consulate in Chengdu to close as a direct tit-for-tat response to the US ordering the Chinese consulate to close in Houston.
- The annual inflation rate in Canada was 0.7% in June, exceeding market expectations.
- Standard & Poor’s (S&P) affirmed Canada's AAA rating, the agency sees Ottawa able to scale back massive COVID-19 fiscal and monetary response as economy recovers.
What does this mean for my investments?
The markets’ rebound from the depths of the mid-March pandemic-driven drawdown reflects optimism that businesses will continue to recover and that as a global society we will find ways to contain the spread of COVID-19. At the same time, government and fiscal support measures for households and businesses continue to provide a strong tailwind for many parts of the market, particularly equity and corporate bond markets. Nevertheless, economic activity remains below pre-pandemic levels and significant adjustments are still needed for many businesses to recover, presenting significant risks to the outlook.
This week we leave you with a chart showing the current dividend yield on the US stock market vs the yield on the US 10-year Government Bond. You can see that for the first time since the 1950s, stocks are actually yielding significantly more than long-term bonds. This doesn’t necessarily predict a specific outcome, especially in the short-term, but it does argue in favour of stocks longer-term as they offer the opportunity for growth and now a higher and more tax-efficient yield as well.