March saw massive economic disruption with the spread of COVID-19, cases increased rapidly in North America and many countries implemented lockdown measures to flatten the curve. Uncertainty and service disruptions are the main drivers for the current economic state. 

The North American market indexes have developed some early signs of a recovering trend in the form of a pattern of rising highs and lows since the initial bottom four weeks ago. We suspect this is largely due to the improving outlook on COVID-19 and massive fiscal and monetary stimulus. World markets were up 2.3% over the last week; this optimism may have come from a potential COVID treatment.

It’s irrelevant to the markets what next quarter’s GDP or unemployment numbers are going to be; currently estimates for GDP and unemployment are all over the map. What’s important is whether the recovery will be V-shaped, U-shaped or L-shaped; this indicates whether recovery is rapid, gradual or absent. 

U.S. Inflation numbers tumbled the most in 5 years. This is unsurprising given gasoline prices and travel have declined at a record price. Canada lost over one million jobs in March. That compares to a gain of thirty thousand in February; but we expect job losses to get worse before they get better. 

Oil volatility remains extremely high, with the current May crude oil contract now trading at a negative price per barrel for the first time in history as it appears that the OPEC+ alliance is still in discussion. The supply cuts are still not enough to offset the destruction of demand.  

Prior to the beginning of the bear market, we had already reduced our exposure to equities, and replaced it with real assets such as infrastructure, private real estate, agriculture, private debt, etc. In the longer term, these assets will provide better risk adjusted returns than public equities. The recent price volatility in the stock market has confirmed our thesis.

The team at Kinsted continues to closely monitor the situation and work diligently on preserving portfolio value where possible, and grow capital when and where appropriate. Please reach out to your Wealth Counsellor if you have any questions.