The results for Canadian and global purchasing manager surveys will be released this week and they remain vital for investors, although now for entirely different reasons.
Each national survey represents the answers to a series of questions put to major firms regarding current levels of business activity, hiring, and new orders for goods. Under normal conditions, the manufacturing purchasing managers indices – known by the short form manufacturing PMIs - provide valuable indicators for global commodity demand and profit growth.
The PMI data this week, including Canada’s on Wednesday, will almost certainly be awful. Results for the European Union have already been reported at record lows, below the 2009 level.
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The terrible results, however, won’t be surprising and are therefore unlikely to cause significant moves in equity markets.
Investors are confronted with an unprecedentedly strange environment. Unlike the financial crisis which unfolded with tragic momentum from late 2007 and through 2008, this time the global economy has come to a sudden halt in a matter of weeks.
Indicators like PMIs matter of course in the sense they reflect economic hardship for real people. From a strictly investment standpoint, the data remain important but entirely in the sense that they establish a baseline from which we can look for a positive inflection point. It almost doesn’t matter how bad it gets – asset markets have already priced in a lot of negativity. Investors will be waiting for the bottom in order to buy when the data begins to improve.
The hope is that the recovery will be just as swift as the downturn. The big question is when the rebound will start.
Morgan Stanley biotechnology analyst Matthew Harrison threw some cold water on the more optimistic scenarios late last week. Mr. Harrison noted that his base case for the U.S. - 200,000 COVID-19 cases with the number peaking in 20 to 30 days – might be too low because of the rapidity of the virus spread on the country’s east coast. This opens the door to his bearish forecast, in which 20 to 40 per cent of Americans contract the virus.
So we sit here, most of us at home, ready to endure at least eight weeks of economic data reflecting degrees of weakness last seen in the 1930s. We know the slowdown is likely to be temporary, whether three months or six months or nine months.
I don’t see a modern precedent to guide investor perspective here. The speed and severity of the slowdown, combined with extreme market volatility and the uncertain duration of the pandemic, means there’s significant risk to both buying new investments and selling existing ones. We can only hope for a minimum of human suffering and await more clarity.
-- Scott Barlow, Globe and Mail market strategist
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Ask Globe Investor
Question: Have we seen the worst of the pandemic selling and do you think now is a good time to acquire stocks?
Answer: Normally, I don’t try to predict what stock markets will do in the short run. However, with the coronavirus showing no signs of slowing down in North America, I believe it would be wise to prepare for the possibility that business shutdowns and social-distancing measures could remain in place for several months. This could lead to continued volatility on the stock market until there is some clarity on when the pandemic will recede.
As always, the best approach is to stay diversified by holding a mix of high-quality stocks, fixed-income investments and cash. If your time horizon is years, not months, selectively buying stocks now may prove to be a good move. But it’s also possible that there may be even better buying opportunities ahead. So proceed with caution.
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Which companies can keep paying dividends in a protracted downturn? Tim Shufelt and David Berman will take a look.