A Most Peculiar Year

Gunther Kruger - Dec 01, 2020
Summary of the past year's events in what has become a Most Peculiar Year.

A Most Peculiar Year

 

As we write this, it appears the US election is decided (finally), and it would appear that Joe Biden has won the Presidential election. It also looks like the Republican Party will retain control of the Senate, with the Democrats enjoying a reduced majority in the House of Representatives. But to quote our Chief US Strategist Tony Dwyer “The good news is that the uncertainty surrounding a very contentious election should soon be behind us, and investors can focus on the macro influences that ultimately drive direction – inflation, interest rates, money availability, and the prospects for domestic and global growth.”

 

Equity markets are liking what they see —the 2.2% bounce was the biggest gain for the S&P 500 for any post-election day since 1932 (source: D. Rosenberg). The market likes that the Senate will be staying under Republican control. It is extrapolating that there will be no major tax hikes and no radical left wing Blue Wave. No more trade wars. No re-regulation. The market is expecting major stimulus measures to be passed soon.

 

Currently Covid-19 cases are spiking throughout the Northern Hemisphere, heralding the advent of the much touted “second wave”. Mercifully, the death rate does not seem to be following suit and we are hopeful that this latter grim statistic can and will be contained. Some jurisdictions are mandating renewed lockdowns although to what extent remains to be seen, as does the ongoing effect of these lockdowns on global economic productivity. While we would never wish to downplay the risks of this disease, we have observed that the pandemic was very much politicised over the past 6 months and it remains to be seen if the pandemic will retain its “A“ list status as the world’s most serious existential threat or if the rhetoric and resulting preventative measures get dialed down. The Covid story is very much a “work in progress”.

 

One of the biggest challenges for us as we go forward will be to find yield in a world where the 5-year government of Canada Bond yields 40 basis points (0.40%) and 1-year GIC’s are yielding less than 1%. We will remain in an ultra-low interest rate environment for the foreseeable future (years) as we reach a glide path back to normalcy. Investors will need to find the appropriate level of risk vs. yield expectations and it will be our greatest mission to help clients thread that needle.

 

From our perspective we are taking the view that the world is slowly getting back to normal, and that tangible economic recovery is taking hold in a meaningful way and on a synchronized global scale. We don’t want to be too optimistic -- there remain challenges ahead, but we are confident that the time for Chicken Little prognostications is over. We are at the beginning of the economic cycle, not the end. Welcome to the New Normal.

 

 

The comments and opinions expressed in this newsletter are solely the work of KrugerLaine Group, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author KrugerLaine Group does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.