Disconnect: Stocks vs COVID-19

View this email in your browser   I hope you and your family are safe. Having rallied a stunning 28% since the March 23rd low, the S&P500 index is now just 15% below its all-time high and roughly flat versus one year ago. This despite the crisis we are all experiencing. Why? Here are a few reasons: Governments (national/regional/municipal) initiated spending programs to support workers and businesses at a scale which previously would have been unthinkable. Central banks went all out. They dropped interest rates close to zero, provided tons of cash to banks and started buying hundreds of billions in bonds including corporate bonds and, in Canada, provincial bonds. These steps provided needed confidence to the market. Positive indications of some potential treatments A belief in a relatively rapid economic recovery (a "V" shaped recovery) I have no doubt stock markets will reach new highs at some point. They always do. But what about the short/medium term? No one knows but it seems to me there is currently more potential for downside than upside. Some key questions: Pace of effective health intervention including testing, treatment and, ultimately, vaccines? Level of economic activity achievable without sparking uncontrolled spikes in infection rates? What industries will remain impaired post crisis? Impact of increased government, business and individual debt levels? When will employment, consumer spending and, ultimately, corporate earnings return to pre-crisis levels? It's early. There will be many surprises to come; hopefully more good than bad. The only thing we can count on is continued market volatility. I don't know your circumstances so I can't make personal recommendations. But, once again I suggest if you expect to draw cash from your investment portfolio within the next two or three years, make sure you have very low risk investments to cover those withdrawals such as short/medium term federal or provincial government bonds, bond ETFs (which hold largely government bonds), insured GICs, insured bank savings accounts or cash. Let me know if you have any questions. Good luck and stay safe!   Larry

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