The economy and financial markets: What to expect in the post-COVID world? CLÉMENT GIGNAC - HubSpot
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The economy and financial markets:
What to expect in the post-COVID world?
CLÉMENT GIGNAC
First Vice-President, Diversified Funds &
Chief Economist, iAIM
May 2020
DEALER USE ONLY
Topics to be addressed:
1. Experiencing a health policy led recession.
2. Our view on the fiscal and monetary authorities reaction.
3. Reopening of the economy: How will consumers behave?
4. V-Shape recovery on Wall Street: Will it be sustainable?
5. iA Wealth Managed Portfolios: Our investment strategies.
DEALER USE ONLY
Current recession: No historical landmarks
G7: A look on the causes of recessions since 1960
Number of occurrences
A new shock to add to the list:
Infectious diseases / voluntary closure of the economy
Restrictive Bursting Oil Bursting of a Banking Restrictive Exchange rate External
monetary of a credit price shock real estate crisis fiscal policy shock demand
policy bubble bubble shock
Source : NBF Economics & Strategy, May 1, 2020. DEALER USE ONLY
U.S. Economy: Q1 GDP growth clocks in at almost -5%,
all eyes on Q2
Real GDP contracted 4.8% in
Q1, the largest contraction
since Q4 2008.
Forecasters are now pointing
to a near 40% contraction in
Q2 2020.
As at April 30, 2020.
DEALER USE ONLY
Back to the 1930’s!
U.S. Unemployment rate heading to 20-25%
U.S.: Unemployment rate
*
Source : Wall Street Journal (WSJ) , May 11, 2020.
Source : Paul Krugman, iA Economics, data via Bloomberg, May 4, 2020. DEALER USE ONLY
Economic impact of COVID and oil: The perfect storm
hurts Canada much worse than the U.S.
Source : iA Economics, data via Bloomberg, May 19, 2020.
Source : iA Economics, data via Bloomberg, May 19, 2020.
DEALER USE ONLY
Fiscal and Monetary reaction
Source : Bloomberg, March 31, 2020.
DEALER USE ONLY
World: Global fiscal measures now at 6% of world GDP
Source : Wall Street Journal (WSJ) , April 30, 2020.
DEALER USE ONLY
Exceptional times require exceptional measures
As at April 30, 2020.
As at April 14, 2020.
DEALER USE ONLY
Canada: Extraordinary measures should bring the
debt level back to the late 1990’s
As at May 4, 2020.
As at April 30, 2020.
DEALER USE ONLYFed: Unlimited QE and purchases of corporate
securities
Source : Bloomberg and CNBC
DEALER USE ONLYBank of Canada: Similar actions taken…with a new
captain in charge
GOOD LUCK TO MY FORMER BOSS:
TIFF MACKLEM
Source : NBF Economics & Strategy, April 30, 2020.
DEALER USE ONLYAfter the lockdowns, the world is
now carefully reopening
DEALER USE ONLYReopening the economy: Canadian provinces are also
announcing their plans
Most Canadian provinces have
started to ease restrictions,
following a multi-step plan.
Although each province follows
a different plan, all warn that
they could reverse course if
new cases surge.
DEALER USE ONLYAn economic recovery scenario very different from
previous cycles
As at April 15, 2020. DEALER USE ONLYChina: A good example as to why a V-shaped economic recovery is unlikely Source : WSJ, May 11, 2020 (both charts). 16 DEALER USE ONLY
U.S. Consumers Survey: heading to a new normal?
FEW PARTICIPANTS
INTEND TO
ATTEND SPORTS EVENTS,
GO BACK TO MOVIE
THEATERS OR TO A
CONCERT…
DEALER USE ONLYV-Shaped recovery on Wall Street
Is it sustainable?
DEALER USE ONLYWall Street: Has this bear market rally gotten
ahead of itself?
S&P 500 Bear Market Rallies
40% 1950 to Present
Current:
35%, 26 Trading Days
35%
30%
Nov. ’08 to Jan. ‘09
Sep. ’01 to Jan. ‘02
25%
Magnitude %
20%
Average:
+15%, 34 Trading Days
15%
10%
5%
0 10 20 30 40 50 60 70 80 90 100
Duration (Trading Days)
Source : Strategas, May 1, 2020.
DEALER USE ONLYStock markets: Wall Street well positioned for a
possible return to calm
Sectors weights (%)* U.S. Canada EAFE EM Japan
Information Technology 25.5% 7.8% 7.6% 16.9% 11.9%
Health Care 15.4% 0.9% 14.3% 3.6% 11.1%
Financials 10.8% 37.6% 16.5% 21.6% 9.7%
Telecommunication Services 10.7% 3.6% 5.5% 13.1% 9.6%
Consumer Discretionary 10.1% 3.6% 11.1% 15.4% 17.8%
Industrials 8.3% 10.1% 14.2% 4.9% 20.0%
Consumer Staples 7.5% 5.0% 12.6% 6.6% 8.8%
Utilities 3.5% 4.3% 4.2% 2.5% 1.9%
Real Estate 3.2% 0.7% 3.3% 2.9% 3.8%
Energy 2.6% 15.4% 4.0% 5.9% 0.7%
Materials 2.4% 11.1% 6.7% 6.7% 4.9%
Source: MSCI INC, March 31
Source: BCA Research, March 31, 2020.
DEALER USE ONLYWall Street: I/T retains its leadership but with growing
anecdotes of euphoria
Source: YCharts, Statista, as at May 15, 2020.
Source: WSJ, as at May 11, 2020.
DEALER USE ONLYU.S. corporate earnings: Is the analysts’ optimism
justified?
Source: WSJ, as at May 5, 2020.
DEALER USE ONLYWall Street: Markets do not rebound in a straight line
Source: WSJ, May 8, 2020.
DEALER USE ONLYWall Street: A strong rebound from lows,
comparable to 2009
Source: WSJ, May 19, 2020.
DEALER USE ONLYInterest rates: The path to recovery should dictate how
fast rates rebound… but will this time be different?
Although the relationship between
the business cycle and interest rates
is quite strong, the next few years
might be different given the
explosion of both government debt
and central banks’ balance sheets
Source : WSJ, May 4, 2020.
DEALER USE ONLYBond market: Things to watch
Yield curve control coming from the Fed?
Possible game changer to come?
“…central banks may need to
implement policies capping
long-term yields given the
potential for higher debt
issuance to push up long-term
interest rates”
-- BlackRock Investment Institute,
Macro and market perspectives,
April 2020.
As at April 30, 2020.
DEALER USE ONLYRisk Factor # 1: Second wave later this year!
Source: WSJ, May 12, 2020.
DEALER USE ONLYRisk Factor #2: Rising tensions between U.S. & China Source : CNBC, May 13, 2020 DEALER USE ONLY
Gold prices vs. central bank balance sheet:
Lessons from the 2008-11 experience
The explosion in the size of
central bank balance sheets
should support the price of
gold in the coming years
Source : iA Economics, data via Bloomberg, December 31, 2012.
DEALER USE ONLYExecutive summary
► COVID-19 caused a sudden shutdown in the world economy in the first
quarter, and the damage will be historic.
► Monetary and fiscal officials have learned from the past and will work to
prevent the recession from degenerating into a depression.
► The recent debacle and rebound took place at historic speed. Given the size
of fiscal and monetary interventions, asset classes such as gold and equities
should offer decent returns in the coming years.
► The reopening of the economy has slowly started around the globe, helping
boost investor sentiment. As long as cases don’t reaccelerate, the process
should continue.
► In the post COVID-19 world, active management will become very important!
DEALER USE ONLYA word on
iA Wealth Managed Portfolios
DEALER USE ONLYA quick update on iA Wealth Managed Portfolios:
DEALER USE ONLYTo follow and reach us: www.ia.ca/economy
DEALER USE ONLYWebcast with Clément Gignac
Insights on Coronavirus & Volatility
Q&A
DEALER USE ONLYWebcast with Clément Gignac
Insights on Coronavirus & Volatility
Thank you
DEALER USE ONLYWebcast with Clément Gignac
Insights on Coronavirus & Volatility
Disclaimer
Source: iA Economics. iA Economics and iA Investment Management (Industrial Alliance Investment Management Inc.) are part of iA Financial Group.
Source: MSCI Inc. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The
MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by
MSCI.
The information provided herein does not constitute financial, tax or legal advice. Statements by the portfolio manager or sub-advisor responsible for the management of the
Fund's investment portfolio, as specified in the applicable Fund's prospectus ("portfolio manager") represent their professional opinion, do not necessarily reflect the views of iA
Clarington, and should not be relied upon for any other purpose. Information presented should not be considered a recommendation to buy or sell a particular security. Specific
securities discussed are for illustrative purposes only. Mutual funds may purchase and sell securities at any time and securities held by a fund may increase or decrease in value.
Past investment performance of a mutual fund or individual security may not be repeated. Unless otherwise stated, the source for information provided is the portfolio
manager. Statements that pertain to the future represent the portfolio manager's current view regarding future events. Actual future events may differ. iA Clarington does not
undertake any obligation to update the information provided herein.
Trademarks displayed herein that are not owned by Industrial Alliance Insurance and Financial Services Inc. are the property of and trademarked by the corresponding company
and are used for illustrative purposes only. The iA Clarington Funds are managed by IA Clarington Investments Inc. iA Clarington and the iA Clarington logo are trademarks of
Industrial Alliance Insurance and Financial Services Inc. and are used under license.
DEALER USE ONLYYou can also read
