July saw some very hot days, some storms and even very pleasant interludes. That little description can be used for the weather or the markets – take your pick.
The first month into the 3rd quarter saw significant gains in stock indices, not necessarily indicative of the economic fallout from the Covid-19 pandemic.
But, as the TD Wealth report shows, as at July 31st, 2020, there were indices showing mixed results in the year to that date (all shown in Canadian dollars):
S&P/TSX Composite -5.2%
Dow Jones -4.4%
S&P500 4.5%
MSCI World .9%
Interest rates remain low, Canada & US at .25%, European Central Bank at .00%. This has resulted in a spike in real estate activity in most metropolitan areas as mortgage rates are attractive to buyers.
I remain cautious about the state of the markets relative to economic activity, earnings are being reported and many companies have missed their forecasts while others have exceeded them handily. It remains a time for careful and scientific investigation and reliance on those managers with proven track records is an essential requirement. It is not good enough to shake the fruit tree, catch as much as you can in your basket and hope that you have more good than bad. That doesn’t work.
Last weekend, when many of us were enjoying activities away from the pandemic restrictions, the venerable US department store chain, Lord & Taylor, was filing for bankruptcy. It is the oldest department store in the US, established in 1826 but was unable to survive mall closures and a switch to e-commerce. Maybe management was too slow to react to a rapidly changing shopping world, for sure exacerbated by the lockdowns. On the other hand, here is a really successful adaptation (source: The Economist August 1st-7th, 2020):
Almost everyone has heard of Kodak – the digital revolution decimated the market for camera film which was their main product line. Kodak has just signed a deal with the US government to make active pharmaceutical ingredients for generic drugs with the support of a development loan. In the days following the announcement, Kodak’s stock rose by 2,190% (please note that I illustrate this for interest, I am not recommending or advising that anyone should invest in the stock).
An area which doesn’t attract much attention in the popular media is taxation. In Canada, the Federal Government has projected a deficit of at least $343-billion, in Ontario, the present government is grappling with the massive debt and deficit it took over from the preceding government and it too has incurred more debt in helping citizens cope with the pandemic. So, it is highly likely that tax increases in various forms will be imposed as all levels of government seek to repay their massive debts. I don’t think increases are likely in the short term because the priority is still to revive and rebuild the economy.
And finally, last week, the US Congress House Judiciary Committee summoned the 4 CEOs of the tech titans, Apple, Amazon, Google and Facebook to answer questions about monopolistic practices. It was 20 years ago when the Internet bubble burst and markets tumbled. None of these 4 were counted amongst the tech giants of that era – there would have been AOL, IBM, Yahoo and GeoCities! It’s the old story – here today and gone tomorrow. I wonder who will be around 20 years from now to be hauled in front of Congress, perhaps an Elon Musk travel agency taking tourists to Mars.
I hope you and your families remain safe and healthy and that you are able to enjoy the rest of the summer.
Best wishes.
Richard