At the time of writing, Canada has recorded more than 24,000 confirmed cases of coronavirus (COVID-19), resulting in 717 deaths. In addition to placing an immense strain on medical workers and services, the COVID-19 public health emergency is also wreaking havoc upon the global economy. Given the unprecedented nature of today’s economic conditions, novice and veteran investors alike are understandably anxious about keeping their assets in the market.
However, coronavirus investing advice, portfolio outlooks, and risk management strategies will only get you so far. If you want to avoid unexpected surprises, you still need to be gauging investor sentiment, analyzing market conditions, and reviewing performance metrics.
How Bad Are the Financial Impacts?
In short, it’s bad. Quite bad. Despite a remarkably bullish rally, Canada’s major equities index, the S&P/TSX Composite Index, is still down 13.28 percent year-to-year. Although industrial output is finally beginning to ramp up in China, international supply chain issues continue to persist. In commodities, hydrocarbon markets are only just recovering from a destabilizing OPEC+ supply dispute between Russia and Saudi Arabia.
Employment reports paint a similarly grim economic picture. In Canada, job data from March indicates that more than 1 million individuals have lost their main source of income. The job picture in the U.S. is even worse. In less than a month, more than 10% of the American workforce, an estimated 16 million people, have entered functional unemployment.
What’s Ahead for Global Markets?
The future trajectory for global equity markets is almost entirely dependent on the success of the international community in curtailing the spread of COVID-19. To reduce COVID-19 transmission rates and alleviate pressure on overburdened public health infrastructure, the Canadian government has implemented a slew of strict social distancing measures. In terms of slowing the spread of COVID-19 across Canada, the most effective of these measures has been the mass closure of schools, entertainment venues, and non-essential businesses.
While undoubtedly necessary, it’s important to remember that social distancing measures have their own negative effects, causing massive job losses and grinding global economic activity to a halt. Until a COVID-19 vaccine is discovered, the contagion will continue to have a pronounced impact on the entire global economy, disrupting supply chains, quashing investor sentiment, and amplifying market-to-market volatility.
Unless there is a dramatic change in the spread or virality of COVID-19, global markets are expected to continue trading sideways as investor sentiment seesaws between bullish and bearish factions.
When Is the Market Due to Recover?
Many of Canada’s top industry leaders and financiers view the ongoing COVID-19 downturn as the most severe economic crisis since the Great Depression. Dave McKay, Chief Executive at the Royal Bank of Canada (RBC), has joined other industry leaders in voicing his doubts at the prospect of a rapid market rebound. According to Mr. McKay, the domestic financial impacts of COVID-19 are already significantly worse than what Canada experienced during the global financial crisis.
After chairing the RBC’s annual shareholder meeting, Mr. McKay discussed his views on the financial impacts of COVID-19 in a scheduled Nasdaq media call. “This is much more severe than the financial crisis,” Mr. McKay emphasized. “We’re facing an economic shock and contagion like we’ve never seen…Most people were talking about a sharp V [-shaped recovery] or a U at a minimum, with a sharp upside. I don’t think we can expect that.”
Unfortunately, there’s a lot of truth to Mr. McKay’s remarks about the impediments to a V-shaped recovery, a market pattern that occurs when a steep downturn is equalized by a surging upswing. These factors include tepid consumer spending, over-leveraged corporate debt loads, volatile energy markets, and the near-total collapse in small and medium-sized business activity.
Nevertheless, it’s not all bad news. At this point in time, there are two major factors that are still capable of kick-starting a partial market recovery.
Firstly, the international outlook regarding COVID-19 is beginning to improve. While still a dire public health emergency, the rate of new COVID-19 cases around the world is beginning to slow, falling from 100,000 new cases per day to between 73,000 and 85,000 per day. In New York, perhaps one of the worst affected cities outside of Wuhan, the hospitalization rate has fallen for the first time.
Make no mistake, it will take some time for life to return to some semblance of normalcy. However, an inflection in the COVID-19 viral curve is a very encouraging sign, showing that public health responses are working, and that, given time, the safe resumption of basic economic activity may not be far off.
Secondly, governments around the world are using extraordinary levels of fiscal and monetary stimulus to shore up reeling economies. In Canada, the Trudeau government has already passed a stimulus and economic relief package worth CA$107 billion. Meanwhile, in the U.S., the Federal Reserve has announced that it’s willing to purchase an unlimited amount of Treasury Bonds to ensure credit markets are operating with enough liquidity. On March 26, the G20 announced that it would be collectively injecting more than $5 trillion into the global economy.
The international community’s near-universal commitment to these unprecedented measures shows that governments around the world (and their central banks) are willing to do whatever it takes to patch up the coronavirus-shaped cracks in the global economy.
Published by Harry Miller
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