Globe Investor
 

March 30, 2020

 
How investors can put terrible economic data in context, what’s driving the market’s wild swings, and more portfolio advice
How investors can put terrible economic data in context, what’s driving the market’s wild swings, and more portfolio advice - A roundup of investment ideas for active investors
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.

 
 
 
Story continues below advertisement
 
 
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

 
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

 
The Rundown

 
Revenge of the robots: What is driving the market’s wild swings

 
Think of last week’s stock market as a Terminator movie. As an individual investor, you were an all-too-human Sarah Connor, up against thousands of computer-based traders (that’d be the nefarious Skynet artificial neural network). If you’ve seen the film – any of them, really – you’ll know how the showdown ended: You survived, but you got beat up pretty good. Andrew Willis explains why the everyday retail investor has been outmatched by machines during this month’s viscous selloff.

 
This area of the bond market is at risk as economic woes deepen

 
There’s one area of the bond market that’s suffering badly: High-yield bonds. That sector is down 9.43 per cent for the year and there may be more losses to come. The reason is simple. The deeper this recession goes and the longer it continues, it is likely we are going to see an increasing number of corporate defaults, despite the government’s bail-out plans. If that happens, bond holders may end up receiving pennies on the dollar, or even nothing at all. Gordon Pape reports on one fund he’s selling because of this reason.

 
What’s next for investors? Here are six key things to monitor as the coronavirus crisis progresses

 
Everyone watches the stock market. But to better understand today’s economic mayhem you need to range more widely. Ian McGugan provides six key areas to monitor, ranging from viruses to household finances to Chinese shares. Together they shed light on what is driving the violent turmoil in Canadian and U.S. stock prices. Better yet, they offer clues about what is coming next.

 
Cash is the best asset class during this coronavirus crisis

 
The few who were sitting on decent cash stockpiles before the plunge are now grateful for the dry powder. Not only did it cushion some of the blow of the crash, that cash will sow the seeds for the big gains that tend to be born of bear markets when they finally bottom for good. And as Tim Shufelt reports, some investing pros are starting to offload it.

 
A value investor’s take on these turbulent times in the market

 
In this COVID 19 environment, companies that are well managed with the right business model and little debt have nothing to fear. But this is not how the markets price them. Dr. George Athanassakos explains

 
Worry, problems and strife: Investors fear markets not out of woods despite big rally

 
After a brutal meltdown, some investors have been wading back into U.S. stocks. But others are wary of another leg down as the coronavirus spreads and its economic impact is difficult to predict. Read more from Reuters about the various viewpoints.

 
Mutual funds face flood of redemptions in turbulent market

 
Canadian mutual fund companies are seeing fund redemptions begin to rise as the novel coronavirus rattles global equity markets, leaving panicked investors looking to hit the sell button. Clare O’Hara reports

 
Others (for subscribers)

 
Monday’s analyst upgrades and downgrades

 
Monday’s Insider Report: Billionaire businessman invests over $42-million in this dividend stock

 
Junior mining insiders are buying the COVID-19 collapse

 
Bullish on Clorox Co.

 
Globe Advisor

 
Advisors step up to provide free advice to Canadians impacted by COVID-19 fallout

 
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

 
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.

 
--John Heinzl

 
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.

 
Click here to see the Globe Investor earnings and economic news calendar.

 
More Globe Investor coverage

 
For more Globe Investor stories, follow us on Twitter @globeinvestor

 
Click here share your view of our newsletter and give us your suggestions.

 
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

 
Compiled by Globe Investor Staff

 
 
About this newsletter
The Globe Investor newsletter provides market news and investing ideas. It is sent three times per week.

To unsubscribe, use the link at the bottom of every email communication. Or log in to manage your Communication Settings.

Can't log in yet? Registration is free and allows you to read more for free. Tips to stay logged in.

For feedback email Darcy Keith.