B of A Securities global economist Ethan Harris has reiterated his belief that a COVID-19 vaccine will not be a panacea for the global economy or markets but more of a “performance enhancer.”
Mr. Harris attempted to temper investor optimism about a vaccine for two broad reasons. One, there will likely be a major time lag between a successful test of a vaccine and its full positive influence on the economy. The firm’s health-care teams have underscored the possibility that the first vaccines will only be partially successful in containing the virus.
The second reason a vaccine will not be followed immediately by full employment is that the negative economic side effects of the pandemic will also have to be dealt with. Mr. Harris writes, “We also must contend with … the damage to confidence and balance sheets, businesses slowly going under and investment plans cancelled.”
Morgan Stanley U.S. strategist Michael Wilson is also sounding a more cautious tone, which is surprising in that his firm has been arguably the most bullish on Wall Street.
Mr. Wilson sees first a “growth scare” in the American economy as attempts to re-open schools and businesses are scaled back or delayed. After that, the strategist sees a “rate scare” as monetary and fiscal spending push longer U.S. bond yields higher.
Despite these headwinds, Morgan Stanley remains confident about markets in the mid-term. “We still think we are at the beginning of a new cyclical bull market,” Mr. Wilson writes, but adds that “we are now ripe for the first meaningful/tradable correction.”
Utilizing this information in portfolios, assuming investors find it credible, will depend on individual investment strategies. Strict buy and hold investors will point and laugh at those they view as attempting to use these forecasts for market timing purchases.
Other cash-heavy investors who feel left out of the recent rally might be tempted to wait and see if Morgan Stanley’s expectations for a market correction come to fruition.
Above all, the combined, cautious outlooks of Mr. Harris and Mr. Wilson serve as a warning for investors who may have become too exuberant amidst the rally and are carrying more risk than they’re tolerance would normally allow.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
There are more than just forestry stocks that are getting a boost from a resilient housing market
The Canadian housing market is like an anti-gravity machine, impervious to the weight of a depression-level economic shock and levitating everything in its vicinity. After a brief interruption, Canadian housing sales and prices have stormed back to record levels, while the U.S. housing market has fully regained its own losses. A housing boom in the midst of a deep recession is an unexpected windfall for a smattering of loosely connected stocks, including home builders, lumber stocks, home centres, hardware stores, furniture retailers and real estate software developers. Tim Shufelt reports (for Globe subs.)
Global dividend plunge to be worst since financial crisis
The coronavirus crisis will see the world’s biggest firms slash dividend payouts between 17%-23% this year or what could be as much $400 billion, a new report has shown, although sectors such as tech are fighting the trend. Marc Jones of Reuters reports (for Globe subs.)
Fund & ETF risk ratings didn’t prepare investors for this year’s bear market
If you are invested in an investment fund – i.e. mutual fund or ETF – you have likely seen a document called Fund Facts or ETF Facts. These are regulatory documents that summarize each fund’s key attributes. Perhaps the most controversial component of the documents is the risk rating, which was standardized a few years ago. Now that 2020 has served up the first bear market since the Financial Crisis, we have a real-time test of risk ratings found in Fund Facts and ETF Facts. And the results aren’t very impressive, reports Dan Hallett. (for everyone)
Others (for subscribers)
The highest yielding stocks on the TSX, plus risk data
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Director invests over $3.8-million in this high-yielding stock
Ask Globe Investor
Question: What is your opinion of the stability and suitability of XUT for an elderly mother in the near term? Also, given that XBB has been one of your core holdings to date, do you see continuing to hold that ETF?
Answer: XUT is the trading symbol for the iShares S&P/TSX Capped Utilities Index ETF. It invests in a portfolio of 16 Canadian utility stocks, including Fortis, Brookfield Infrastructure Partners LP, Emera, and Algonquin Power & Utilities Corp. These are defensive stocks, with minimal upside but limited downside risk.
The fund has a steady track record with a five-year average annual return of 10.43 per cent to July 31. I would rate it as low-risk, but it has posted some down years, most recently in 2018 when it fell 8.2 per cent.
The latest monthly distribution was $0.095 per unit. If that were to continue over the next year (no guarantee), the yield at the current price would be 4.25 per cent.
If you’re looking for a defensive fund with a respectable yield for your mother, this would be a good fit.
XBB is the symbol for the iShares Core Canadian Universe Bond Index ETF. I regard this as a core bond holding for all portfolios. It’s offers stability to a portfolio and has generated an average annual compound rate of return of 4.46 per cent over the decade to July 31.
--Gordon Pape
What’s up in the days ahead
For quite some time now, we’ve heard that value stocks have been chronic underperformers versus growth and other areas of the stock market. But usually that discussion focuses on the U.S. market. Dr. George Athanassakos will tell us about how value underperformance has been much less the case in Canada.
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Compiled by Globe Investor Staff