Financial Panorama

Focus on the past month

Overview of global equity markets*

• The benchmark index of the Canadian stock market, the S&P/TSX, rose 2.1% in June, for a return of -9.1% for the first six months of 2020.
• In the United States, the S&P 500 gained 1.8% while the Nasdaq climbed 6%, bringing their respective year-to-date returns to -4% and +12.1%.
• International stock markets were also in positive territory for the month, with the EAFE Index up 3.2%. Year to date, the index is down 12.6%.
• Emerging market equities gained 6.2% in June (-6.5% in 2020) and Chinese stocks jumped 7.5% (+8.6% in 2020).

^* All the percentages in this section are in Canadian dollars. Bloomberg unless otherwise indicated.

Key events

• Most of the world’s economies are easing their lockdowns, and if Europe and Asia seem to be doing well by requiring that certain regions return to lockdown, the United States is seeing an acceleration in the number of COVID-19 cases in the southern states that reopened too quickly.
• The gradual resumption of activities, the impact of monetary and fiscal measures, as well as the recent release of less-negative-than-expected economic data have helped generate some optimism among investors.
• Corporate results for the second quarter will be announced shortly, and observers should focus more on the outlook for returns than the results of the past three months.
• In response to the current health crisis, central banks have injected massive amounts of liquidity into the financial markets; they also sharply reduced their key rates, which should remain low as long as inflation does not continuously exceed targets.
• Substantial government tax measures to support businesses and their employees will end soon, which is likely to result in job losses in sectors such as the restaurant, tourism and hotel industries.
• While economists had forecast the creation of 3.2 million jobs in the United States in June, 4.8 million new jobs were actually filled during the month.
• In Canada, almost one million jobs were created, versus expectations of 700,000, which reduced the unemployment rate in Canada from 13.7% to 12.3%. (Sources: Statistics Canada and Refinitiv)
• These surprising numbers are due particularly to the fact that the wage subsidy programs prompted companies to re-hire their employees more quickly; it should come as no surprise, however, that a possible second wave of restaurant and bar closings in the United States will hurt employment in July.
• Government of Canada bonds across maturities posted a return of 0.4% in June and have risen 7.4% year to date in 2020. (Source: Canaccord Genuity)

Our strategic monitoring

Main risks

Here are some risks that we are closely monitoring in the current environment.

• The recession caused by the health crisis could turn out to be more serious than expected and lead to an economic depression, especially if a second wave occurs requiring the re-implementation of lockdown measures.
• The negative and persistent impact of the pandemic on consumer confidence is likely to cause a reduction in consumer spending over a long period, which would perpetuate the recession.
• The U.S. election and the uncertainty it creates would affect corporate tax rates and the regulation of tech giants.
• If the development of a COVID-19 treatment or vaccine extends beyond the first quarter of 2021, the crisis would drag on and market volatility would increase.

Fundamental indicators

Some economic indicators improved in June.

Global Purchasing Managers’ Index

This index rose strongly in June, in the wake of the gradual restarting of economies worldwide.

U.S. initial jobless claims

New orders increased considerably in the United States, as companies had to replenish their inventories in response to increased consumer demand following the coming into force of plans to lift the lockdown.

U.S. job creation

Although this index, which foreshadows U.S. economic activity, is still in negative territory, it has improved somewhat, which is encouraging.

As far as equities are concerned, we are currently:

• neutral on emerging market (China, Brazil, Russia, India, etc.) and EAFE (Europe, Australasia, Far East) equities
• underweight Canadian equities
• overweight U.S. equities

Sources: Bloomberg

The opinions expressed here and on the next page do not necessarily represent the views of Professionals’ Financial. The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. Please consult your Wealth Management Advisor.