Robert N. Masutti, CFP, CIM | Portfolio Manager & Wealth Advisor | RBC Dominion Securities

To describe 2020 as a whirlwind/head-spinning year is an understatement!

Continuous news of: Virus spreads, case counts, deaths, shutdowns, re-openings, lockdowns, vaccines, late vaccines, long-term care homes/residents, exhausted healthcare workers, testing, rapid testing, line-ups, unemployment, ballooning deficits & debt,  never-ending election news from the US primaries to the last 2 Senate seats on Tuesday (we’ll see when that one ends…), etc., etc.

We can be thankful that: our food supply was safe (with inflation, but safe & reliable), the medical systems “bent” but have not broken, crime is down, children’s education continues, we have vaccine options, many can remain working (at home, or in their workplace with appropriate measures), and among other things, we have hope for some normalcy by 2021’s end. (And, we were able to fly back from Florida (easy) in March vs driving to Buffalo and begging to cross the bridge…).

Like many of you, the restrictions & distancing challenged my appliance repair skills, auto repair (already a hobby), cooking skills, cleaning skills, “not-going-insane-skills”… and unfortunately the kitchen is too close to my home workstation – thus I participated in putting on the “COVID 19(lbs)”… and have worn out the fridge door hinges (see appliance repair) … streaming services are indispensable, and online shopping enabled a re-view of childhood favourites such as Black Sheep Squadron … Silly humor provided by the likes of Adam Sandler, Will Ferrell, etc. were/are welcome distractions.

Markets reacted to the uncertainty, then to the partial shutdowns, to Government interventions,  good and bad news with respect to virus spread, more knowledge of the virus, China trade, Taiwan/Iran tensions, vaccine news, expanded social safety nets, Brexit negotiations & agreements, etc. Solid income credit securities/strategies recovered well, while dividend stock portfolios were buoyed by their reliable income and stable balance sheets.

Going forward the markets will have to come to grips with companies (Boeing, Cruise lines, airlines, etc.) that had to take on huge debt (to survive), with respect to their stock values – remember in the post WWII time frame, markets are usually willing to pay around 16 times (Price/Earnings) a company’s future profits. (Interest payments decrease profits, and debt repayments decrease cash-flow).

The US was the economic leader prior to the Pandemic, and I’d look to the US to lead the recovery. Nothing is assured and I’ve listed some of the issues to keep in mind. There is a consensus that the increased savings rate, wanting to save in the face of uncertainty and inability to spend during shutdowns, will lead to a consumption boom on the re-opening of businesses/sectors. This obviously requires a large percentage of fully vaccinated citizens, DECREASING daily case counts and confidence that people will be safe venturing out from their homes.

Good News

  • Rising purchases/construction of single-family homes (especially detached homes)
  • Large rise in savings rate
  • Large numbers of vaccine doses delivered and on order & Gradual vaccinations (approx. 4 million in the US as of this writing – Canada should be at 1/9 that number) (Israel (not comparable due to size) has had great progress!)
  • Short-term central bank rates  will remain low

Risks

  • Virus mutations (more severe symptoms/lethality), near term vaccine issues?
  • Wealth Health (savings etc.) is skewed to currently employed, average values hide the large disparity with respect to those still unemployed (entertainment, travel, restaurant, etc.)
  • January 5 2021 US Senate run-off election in Georgia (Rising corporate taxation in the US?)
  • With good economic news, we may see market interest rates ( 5, 10, 30 yr) rise
  • This could lead to a revaluation of some higher PE stocks
  • Sheer amount of cases could delay/negate the effect of re-opening

Regards,

Robert N. Masutti , CFP CIM | Portfolio Manager & Wealth Advisor | RBC Dominion Securities| | T. 905-738-4203 or 1-800-837-0373 | F. 905-738-4190 | 3300 Hwy 7 W, Suite 701, Concord, ON L4K4M3 | robert.masutti@rbc.com | www.robertmasutti.com