May 2020 Portfolio Management Team Update

Elvis Picardo

May 7, 2020

Market & Economic Environment: Global markets staged a stunning rebound in April from the preceding month’s “Coronavirus Crash” as massive doses of stimulus and the prospect of economies reopening enabled investors to look past dismal economic data. The TSX notched six straight weekly advances to gain 10.5% in the month, its best monthly performance since May 2009.

There was significant divergence in sector performance on the TSX. The Materials sector was the best performer (+33%), led by miners and paper/forest product companies. Information Technology (+29%), ranked second, as Shopify’s 71% surge year-to-date made it the third-largest Canadian company by market capitalization, surpassed only by Royal Bank and Toronto-Dominion Bank. Communication Services (-0.3%) was the only TSX sector to finish in the red in April, while the Financials sector (+0.9%) advanced marginally, weighed down by a decline in banks.

In the U.S., the S&P 500 surged 12.7% for its best month since January 1987, while solid earnings by the technology mega-caps enabled the Nasdaq Composite to soar 15.5% in April, its best monthly performance since June 2000. Most global bourses participated in the equity rebound, with the MSCI World Index gaining 10.2% to pare most of its 13.1% decline in March. (Data Source: FactSet)

Our Strategy: The 35% rebound by the TSX and S&P 500 from their March 23 lows to April 29 left the indices only about 15% and 13% away from their all-time highs, while the Nasdaq almost erased its 2020 decline. Although the market rally is certainly encouraging, the global economy is not yet out of the woods, as uncertainty continues to linger about the economic fallout of the worldwide lockdown and whether a second wave of the coronavirus will hinder the expected recovery. In addition to the virus-induced slowdown, the Canadian economy also faces a specific challenge from abysmally low prices for crude oil, which briefly fell into negative territory last month.

The Portfolio Management Team (PMT) is monitoring market conditions very closely. As the PMT had anticipated, market volatility has abated from March’s extremely elevated levels, while seasonal weakness in equities may give rise to buying opportunities. The PMT expects to rebalance client portfolios in the first half of May as it continues to adjust them to market conditions.

Please contact any member of the PMT if you have any questions or concerns regarding your accounts.