“Buy the ticket, take the ride”, wrote Hunter S. Thompson in Fear and Loathing in Las Vegas, “and if it occasionally gets a little heavier than what you had in mind, well...maybe chalk it up to forced consciousness expansion.” The current experience of buy and hold investors, while less colourful than Mr. Thompson’s Vegas road trip, is metaphorically encapsulated in the sentiment.
The market moves are dramatic but there’s not a lot of advice that will help investors at the moment – too much damage has already been done. As of midday Friday , the S&P/TSX Composite is down 29.5 per cent from its February 20 high and the S&P 500 is 26.0 per cent lower than it closed on February 19. Domestic energy stocks that once traded above C$50 are now changing hands with pocket change prices. The S&P/TSX Composite Index Thursday saw its biggest drop since 1940.
Investors can be forgiven for raising cash levels in their portfolios to help them sleep at night but there is real risk in shifting portfolio allocations now. Selling and de-risking makes it more likely investors will not fully benefit from the market recovery.
Ritholtz Wealth Management’s Michael Batnick writes, “If you’re making drastic changes to your [retirement account] just stop… What you’re really doing is ensuring you’ll have less money in the future because you’re uncomfortable today… when this thing finally does end, there will be a rally so fast and so furious that it will leave the people who sold like a deer in the headlights.”
In the short term, the news is likely to become more negative. Measures to contain the COVID-19 virus in North America have only started, and the precedents provided by South Korea and Italy imply that the infection rate will climb from here.
Equity markets still have downwards adjustments to make. Citi global strategist Robert Buckland forecasted that there won’t be any global profit growth in 2020 but analysts are still projecting a year over year gain of eight per cent. Investors can expect disappointing earnings reporting seasons for the remainder of the year as companies fall short of expectations.
The good news, like the virus, comes from China. Reuters reported that the country’s senior medical advisor, Zhong Nanshan, predicts that the global coronavirus pandemic is likely to end in June. So even if the next few months has its share of human tragedy and economic dislocations, we can be thankful the pain will be short-lived.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
The market rout is a gift for income seekers
Let’s be clear, says John Heinzl. The coronavirus is a serious disease and the aggressive measures governments are taking to control it are going to put a dent in economic growth – possibly a large dent. But in many cases, because of the pervasive fear that has set in, stock prices have fallen below what analysts consider reasonable valuations of the businesses themselves. Whether you’re looking at apartment REITs, utilities or other sectors, as always stay diversified and focus on the long term. This turmoil will pass, and it may well turn out to have been a terrific time to buy income-producing stocks. Read more of John’s investment advice in these trying times, including some specific dividend names that could turn out to be buying opportunities of a lifetime right now.
Now we see why dividend stocks and preferred shares are no substitute for bonds
When the going gets tough for stocks, bonds take the edge off. This basic rule of investing has been validated yet again in the recent stock-market decline. The dividend stocks and preferred shares some investors have used as a higher-yielding substitute for bonds have provided little comfort. Rob Carrick reports.
How Canadian fund managers are reacting to one of the worst days ever for the TSX
The downward spiral of global stocks, which has pushed Wall and Bay Streets into bear territory, has portfolio managers reviewing their strategies of how to protect investors in the short term while maintaining long-term investment goals. The Globe and Mail spoke with several Canadian portfolio managers about their approach during this next leg of the market downturn.
If investors were looking for active leadership in global markets, they didn’t find it this week
The global market meltdown began as a medical crisis. It is turning into a leadership crisis. Ian McGugan shares his views
Rosenberg: A significant bear market is just starting
We have the makings of a significant bear market, and it’s just starting, says David Rosenberg, Canada’s most famous economist. There are falling knives everywhere and now recession reality bumps up against a complete lack of earnings visibility and the most leveraged corporate balance sheet ever witnessed.
When should investors start buying? Here are three ways to tell
Investors have learned that attempting to time the market is a pointless endeavour. But the unsettling spike in volatility has created the demand for an all-clear signal, an indication that something approaching normal market conditions has resumed. Scott Barlow presents three charts designed to accomplish this task. Each should provide valuable clues on when panic-selling episodes will subside and optimism will return, as well as increase the chances of finding investment bargains.
Others (for subscribers)
The week’s most oversold and overbought stocks on the TSX
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Thursday’s Insider Report: Two dividend stocks being acquired during the market turbulence
Liquidity in U.S. Treasuries worrisome as Fed tries to restore order
Globe Advisor
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Ask Globe Investor
Question: I have about US$150,000 invested in U.S. stocks. This money is parked there until spring 2021. I wish to move some gradually to a more secure holding, as I will need this cash in spring 2021. I have converted some to cash but wonder what U.S. recommendations you have. On the Canadian side, you seem to suggest high interest savings accounts, but are there the some available for U.S. dollars? Are bond funds secure enough from loss? I plan to keep it the money in U.S. dollars and not convert to Canadian. Your recommendation on U.S. dollar capital preservation would be helpful.
Answer: Most banks offer U.S. dollar accounts, but the interest rate is usually appallingly low. The best deal I am aware of is from Tangerine Bank, an on-line subsidiary of Bank of Nova Scotia. According to its website, it is currently offering a U.S. dollar savings account to new clients that pays 2.75 per cent for the first five months. After that, it reverts to the normal rate, currently 0.25 per cent. The offer expires April 30.
You might also look at the Renaissance High Interest Savings Account, which was paying 0.95 per cent on U.S. deposits as of the time of writing. But keep in mind these rates can change quickly and are likely to do so as central banks move to attempt to counter the economic impact of the novel coronavirus.
Alternatively, look at the iShares Short Treasury Bond ETF (SHV-Q). It invests in a portfolio of U.S. Treasury bonds that mature in less than a year. That means the risk is low, but so are the returns. As of March 6, the year-to-date gain was 0.66 per cent. Over the five years to Feb. 29, the average annual compound rate of return was 1.1 per cent. However, the risk is minimal. This ETF rarely loses money and when it does the loss is fractional. The last down year was 2015 when the fund finished in the red by 0.01 per cent. The expense ratio is 0.15 per cent.
--John Heinzl
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What’s up in the days ahead
There is at least a faint silver lining on the other side of this financial, economic and health crisis – a reset of what might be expected out of financial markets in years ahead. Tim Shufelt will explain this weekend.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff