Market Commentary Mid September 2020

Monthly asset allocation September 2020:

Source: Pictet Asset Management

Our business cycle scores offer some grounds for optimism – brighter prospects for the developed economies have enabled us to upgrade the outlook for the world as a whole to neutral from marginally negative. One key positive development has been Europe’s newly agreed EUR750 billion recovery fund. Encouragingly, 70 per cent of it is expected to be spent over the next two years. China remains ahead in terms of the extent of its recovery, which, along with a weaker dollar, should be supportive for emerging markets and for the materials sector. Whether the vantage point is the economy, the political landscape or Covid-19, Europe appears to be in better shape than the US. Which is why we retain an overweight position in European stocks. EU member states’ endorsement of the Franco-German led EUR750 billion recovery fund last month and the ECB’s continued monetary stimulus put the European economy on a much firmer footing; we have consequently raised our forecast for the region’s GDP growth for 2021 by 1 percentage point to 7 per cent. Crucially for investors, Europe’s stock markets do not yet discount the region’s improving economic prospects. Particularly when compared to their US counterparts.  US stocks are already very expensive in any case. For US equities to maintain their current price-earnings multiple of around 24, corporate profit margins would have to remain stable. That is a stretch, particularly when factoring in the US’s continued failure to contain Covid-19, the growing regulatory backlash against Silicon Valley and uncertainty surrounding the outcome of the November Presidential election. Mindful of these risks, we remain neutral US stocks. With an increase in consumer spending a feature of the recovery taking hold in parts of the world, we are attracted to consumer staples stocks.  To maintain a defensive tilt in our equity allocation, we have reduced our weighting in financials to underweight. Although banks’ bad debt provisions resulting from pandemic-induced lockdowns have been largely in line with expectations, they remain acutely vulnerable to any setback to the smooth reopening of economies. Moreover, dividend payments are unlikely to recover for the foreseeable future. Regulators across the world– including the ECB, the Fed and the UK’s Prudential Regulatory Authority – have moved aggressively to either cap bank dividend payments or temporarily suspend them. This greatly reduces the investment appeal of financial stocks. As always, if you would like more information please contact your adviser within the Just Service Global network. For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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Reasons to be cheerful and fearful: Cautious optimism is the way forward

Investment Market update to Friday 21st August:

(Source: Dominion Funds)

Equity markets last week continued their upward trend, with the Nasdaq powering ahead to new all-time highs and the S&P 500 showing solid gains. Economic data continuing to suggest a bounce back in major economies from lockdown lows, supportive monetary and fiscal policy and continued progress on developing treatments and vaccines for COVID-19, are all supporting the positive sentiment in equity markets. There is a growing feeling that we are past the worst of this crisis. Evidence indicates that COVID-19 spreads seasonally, indicating that Northern Hemisphere countries (the bulk of the world economy) could face a ‘second wave’ in the winter. Despite great strides being made in fighting the pandemic, we are still some way off beating this disease. This risk remains high and something that should temper investor optimism. An economic bounce-back… of sorts: what is the data saying? US retail sales were up 1.2%, month-on-month (MoM) in July, missing the market’s expectation for an increase of 1.9%. However, retail figures for both June and July were up 1.9% year-on-year (YoY). This marks three straight months of improvement for US retail, and the emergence of a more normalised picture. Meanwhile, the University of Michigan’s Consumer Sentiment Index edged up to 72.8 in August 2020 from 72.5 in July, narrowly beating estimates of 72. In other US data, industrial production rose 3% MoM in July. This followed a 5.7% rise in June and was in-line with expectations. Manufacturing output rose 3.4%, beating forecasts, with the largest gain coming from motor vehicles and parts, which increased by 28.3%. Building permits jumped 18.8% in July to a seasonally adjusted rate of almost 1.5 million – well above expectations and the highest since January. The Eurozone’s trade surplus widened to €21 billion in June – much more than the market was expecting – but imports and exports both dropped (by 12.2% and 10%, respectively). While it looks like the worst is behind us in Europe, there is still no sign of a spectacular turnaround. However, the Bundesbank suggests that we will see a rapid and broad-based recovery in the German economy this year, as lockdown restrictions have been lifted. In China, recent data has been mixed. The country’s retail trade declined by 1.1% YoY in July – the seventh straight month of contraction. On the other hand, Chinese industrial output rose by 4.8% in July, while average new home prices rose at the slowest pace since May 2018 (4.8%) and real estate investments increased. China’s recovery is moving forward – and this is a clear and encouraging trend – but it’s not moving as fast as some commentators predicted.    As always talk to your adviser within the Just Service network if you would like information or otherwise review your savings, investment or pension plans. For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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When will be the next Stock Market drop?

Source: The Motley Fool

 A lot of investors have been wondering when another stock market drop will happen.  Whether that’s a week, month, or years from now it will happen. However, many analysts are predicting that another market dip at least is expected in the near future. While we can’t predict to the moment when that could happen, there are some indicators that could tell us another stock market nose dive is coming. By looking at what’s already happened, we can perhaps figure out what to look out for. After all, history repeats itself. Stock market drop: the why Of course, there’s the obvious: COVID-19. Almost as soon as COVID-19 became known globally, it seemed to hit almost every shoreline. As the virus spread, the markets fell. By mid-March, the S&P/TSX Composite was just one of the composite to have fallen nearly 40%.  While no one could’ve predicted the virus, many analysts believed a stock market crash was coming. Another factor was the oil and gas sector. The price of oil had been dropping for years, but then it came to a crashing halt, with Russia and Saudi Arabia creating an oil price war with the Organization of Petroleum Exporting Countries (OPEC). Yet on top of all this was a poor economic situation that’s been getting worse since the last financial crisis. Unemployment was up, the U.S. Federal Reserve announced an inverted yield curve, and there has been a large increase in corporate indebtedness. Gross world product rose from 84% a decade ago to 92%, about $72 trillion. As the economic climate worsens, companies can’t repay debts or refinance them, causing the restructuring we’ve seen. The present There seems to now be some rose-coloured glasses in the markets today. The stock market crash is practically in the rear view to many, with a rebound underway for the last few months. But many analysts are warning that investors are falling into the “bear market trap.” Many believe the economic situation has changed when really, it hasn’t. Part of the rebound has been from news that jobs have been added and a vaccine could soon be underway. But there isn’t a vaccine available yet, and hundreds of thousands of jobs don’t replace the millions of people in Canada with less or no work. This is why analysts believe the markets will continue to drop over the summer months of July and August. What next? Oil and gas prices are still weak. The coronavirus is still very much part of our everyday life. Countries are still struggling as debt climbs and businesses weaken. Companies large and small are going to have to make further cuts if there is any hope of survival. This is likely to trigger poor earnings reports, and poor share price performance. So it is more than likely, before the summer is out, we are going to see a significant drop in the markets. How to prepare There are a few things you can do to prepare before the next market downturn. First, sell stocks if you need money in the next year or so – or otherwise move to cash. Make sure you can pay your bills before anything else.  Next, make sure your shares are in solid companies that will come out of a crisis well, even if that means a slump for now.  And finally, keep some cash on hand to invest in some more good companies should the market drop again. And there are always opportunities Source: Just Service Global

• Innovation in health care is changing the world. While facing some significant potential headwinds at the start of the year, many health care stocks have seen a dramatic change in sentiment since, and greater levels of demand

• Technology across all industries (including banking) will continue to change the world we live in 

• The Energy sector is so oversold (with crude as the core driver)

• Gold will always be a trusted hedge

• Selected alternatives such as hedge funds can have their place in portfolios

• Dividends can be even more important in a low interest-rate world. For investors seeking dividend income, the combination of record dividend cuts and historically low interest rates has emphasized the importance of being able to identify those funds or companies that can sustain or quickly restart dividend payments.

As always, if you think its time to review your portfolios talk to your Just Service network adviser.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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