BMO Nesbitt Burns
1 First Canadian Place
38th floor, P.O. Box 150
Monthly Update - March 2020
Your portfolio declined in March, leaving you down % in 2020. You remain with positive performance over the last twelve months.
While stock markets have been historically negative over the last six weeks, in your case we are talking about a regression of months – not years.
You might be wondering why your accounts are not down more. You are a balanced investor: bonds held in well, the US dollar rose materially over the month and the high quality stocks (which is all we own) did not fall at the pace of the market.
You are weathering the storm and are well insulated during this time of historic volatility.
While the magnitude of moves has been extreme, the trends are unfolding as we had expected. The Canadian economy is slowing down sooner and faster than the United States. Interest rates have been cut and the Canadian dollar has weakened.
We expect the months ahead to remain challenging with the pattern of large swings down and up to continue. We have a plan to navigate this.
In time, markets recover and a new cycle of growth begins.
Government interest rates in Canada and the U.S. are now effectively at zero percent. This is one of the ways policy makers are buying time for people and businesses to get through the health crisis that has impacted the economy.
Another is the direct purchase of bonds by central banks. This buying helps bond markets operate more smoothly by supplying cash (liquidity) which allows transactions to occur at more normal prices.
Restoring stability to bond markets is the first step to reducing volatility in stock markets. The passage of time will also help.
Our investment strategy remains sound and unchanged: Own a diversified group of high-quality U.S. and Canadian investments that pay dividends or interest. These are companies that are central to the economy. In all likelihood, they will see their influence grow and their market share increase as we work our way through the economic challenges of this health crisis – emerging bigger than they are today.
You and your portfolio are in a strong position.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“The Cyclical Bear Market Has Arrived - March was undoubtedly a month for the record books. Following the February selloff, the coronavirus (COVID-19 virus) outbreak sharply accelerated sending US stocks plunging more than 12% in March, the worst monthly loss since October 2008, ending the almost 11-year bull market. Overwhelming fear and panic among investors pushed the S&P 500 into a bear market in record time (22 calendar days) with the index eventually declining 34% from its Feb 19 peak during the month. Aggressive monetary and fiscal stimulus was put into action, in the form of near-zero interest rates, open-ended Fed QE, and a $2 trillion economic package, but concerns still remained whether this will be enough to adequately lift the US economy in 1H… [W]e continue to believe US stocks will eventually stage a strong rally once outbreak fears begin to subside. And when this occurs, there is no reason to believe that the stock market will not see upside moves similar to the extraordinary weakness exhibited during the past few weeks. So yes, the cyclical bear has arrived, but the secular bull is still here too… We are confident that this near-term weakness, anxiety, and panic – albeit severe – shall eventually pass, and the secular bull will keep on rolling… With the S&P/TSX down 22% year to date and over 25% since peaking on February 20, Canadian equities have officially entered a bear market. However, corrections - let alone bear markets - in Canada, are traditionally defined by commodity weakness and/or fundamental deterioration… No doubt the fundamental impact of the shutdowns remains unknown. However, “COVID depression” labels stoked by increasingly garish prognostications of multi-months of shutdowns are only adding to the shock factor in our view. Unfortunately, Canadian equities are combatting a triple threat: fear, economic shutdown and plunging oil. The common denominator to ALL THREE, in our view, is the ambiguity of each of their duration. It seems to us that “defaulting to the negative” has become excessively consensus, with optimism and common sense carrying the label of Pollyanna or flippancy. While monetary and fiscal policy is unlikely to secure an increasingly fragile Canadian investor psyche, there is no denying the massive fuel both will provide the eventual recovery. So too will Canada’s fiscal relationship, let alone its physical proximity with the US. Yes, the oil shock is a perceived negative for Canada – especially psychologically. However, many investors forget that Canadian equities can “stay afloat” and in some cases do very well when oil is suffering. As an investor, we must maintain solace that Canada has some of the best companies in the world right under our noses, with direct access and to others courtesy of our neighbours to the south. As such, we believe that hope, balance, process and perspective will defeat the triple threat facing investors as this too shall pass.” Portfolio Strategy – April 2019. BMO Capital Markets.
- Stocks in your portfolio that made a new 52 week high this past month: None
- Stocks in your portfolio that made a new 52 week low this past month: Accenture*, CN Rail*, Fortis*, Home Depot, Johnson & Johnson, JPMorgan, MasterCard*, Medtronic, Royal Bank*, TD Bank*, Telus*, United Health*, Waste Management*
- The Loonie declined by four cents versus the US dollar to $0.71
We wish you all our best,
Ian, Gab & Kaitlyn
* This specific security is covered under the research of BMO Capital Markets. For a full list of company specific disclosures keys please visit https://research-ca.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx
or ask your BMO Nesbitt Burns Investment Advisor for a copy.