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Yann Furic
B.B.A., M. Sc., CFA

Senior Portfolio Manager, Asset Allocation and Alternative Strategies

Global stock markets continue to rise

Overall, economic indicators continue to improve, signaling a recovery of the global economy. For their part, global stock market indices continued to trend upward, recouping another part of the losses suffered in the wake of the lockdown measures put in place due to the COVID-19 pandemic.

Focus on the past month

Overview of global equity markets*
  • The flagship index of the Canadian stock market, the S&P/TSX, rose 4.5% in July, for a return of -3.3% for the first seven months of 2020.
  • In the United States, the S&P 500 gained 4.1% while the Nasdaq climbed 5.3%, bringing their returns for the year to 5.8% and 24.5%, respectively.
  • International stock markets were also in positive territory during the month, with the EAFE index advancing 0.9% for a year-to-date return of -5.9%.
  • Emerging market equities were up 7.4% in July (+1.8% in 2020) and Chinese stocks jumped 7.9% (+17.2% in 2020).

* All the percentages in this section are in Canadian dollars. Bloomberg unless otherwise indicated.

Key events

  • Most countries and regions of the world are easing their lockdowns, with some more advanced than others; Europe and Asia appear to be doing well, but our neighbours to the south are facing a surge in new COVID-19 cases in states that reopened too quickly.
  • Recently released economic data are better than expected, but some higher frequency data, such as OpenTable online restaurant reservations and gasoline consumption, suggest that the reopening of the U.S. economy is progressing slowly and could take some time.
  • Second quarter corporate results were better than forecast.
  • In response to the current health crisis, central banks have injected massive amounts of liquidity into the financial markets; they have also considerably reduced their key rates, which should remain low as long as inflation does not continuously exceed targets.
  • Governments have implemented support measures that allow businesses and workers to earn income while the economy is on pause; some of these measures have been renewed in Canada while in the United States, politicians are having difficulty agreeing on a new plan, which could hurt the recovery.
  • 1.76 million new jobs were filled in the U.S. in July, versus expectations of 1.48 million; the unemployment rate fell from 11.1% to 10.2%.
  • Employment data were also surprisingly strong in Canada, with more than 418,000 Canadians returning to work, when projections were for 380,000; the jobless rate in the country dropped from 12.3% to 10.9%. (Sources: Statistics Canada and Refinitiv)
  • The price of gold rose strongly in July, even topping the US$2,000 per ounce mark for the first time ever.
  • Government of Canada bonds across maturities posted a return of 0.3% in July and have risen 8.1% year to date in 2020. (Source: Canaccord Genuity)

Our strategic monitoring

Main risks

Here are some risks that we are closely monitoring in the current environment.

  • The recession caused by the COVID-19 pandemic could be prolonged and lead to an economic depression, especially if a second big wave occurs requiring the re-implementation of lockdown measures.
  • The persistent negative impact of the health crisis on consumer confidence is likely to cause a reduction in consumer spending over a long period, which would perpetuate the recession.
  • A resolution of the trade disputes between China and the United States does not appear imminent, and there is always the possibility that tensions between the two superpowers will escalate and harm the global economy.
  • The U.S. election and the uncertainty it creates would affect corporate tax rates and the regulation of tech giants.
  • If the development of a COVID-19 treatment or vaccine extends beyond the first quarter of 2021, the crisis would drag on and market volatility would increase.

Fundamental indicators

Some economic indicators improved in July.

Earnings growth

Corporate profit growth improved, with better-than-expected quarterly results.

François Landry

Vice-President and Chief Investment Officer

Vice-Chairman of the Board of Directors of Professionals' Financial - Private Management

Our strategies
(6-to-12 month horizon)

We are maintaining a neutral tactical position for now in the FDP Tactical Asset Allocation Private Portfolio, i.e. 55% equities and 45% bonds.

Financial markets have gained back the ground lost due to the pandemic faster than we expected. Investors are generally very bullish and index levels are largely discounting economies returning to normal. We believe that many uncertainties remain and call for continued vigilance in the short term; consequently, a more neutral short-term position seems appropriate.

However, over a horizon of more than 12 months, we are more optimistic about an overweighting of equities, given the systemic low level of interest rates and the outlook for more sustainable earnings growth in a context of normalization of the health crisis.

The geographic allocation of equities in our portfolios changed little during the past month.

  • The underweighting of Canadian equities was reduced, and the weighting of Canadian banking stocks was increased.
  • We are maintaining an overweight position in U.S. equities and have purchased U.S. industrial stocks, which should benefit from an eventual economic recovery and announced infrastructure spending.
  • We are maintaining a neutral position on EAFE (Europe, Australasia, Far East) equities due to the fiscal measures implemented in Europe and the reopening of euro zone economies.
  • Lastly, we remain neutral on emerging markets in light of heightened tensions between Beijing and Washington, a situation that is expected to last until the U.S. presidential elections in November.

François Landry, CFA
Vice-President and Chief Investment Officer

Yann Furic, B.B.A., M. Sc., CFA
Senior Portfolio Manager, Asset Allocation and Alternative Strategies

Sources: Bloomberg

The opinions expressed here and on the next page do not necessarily represent the views of Professionals’ Financial. The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. Please consult your Wealth Management Advisor.

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