Rana Chauhan, Counsel’s Chief Investment Strategist, shares reasons for the strong market recovery in Q2, and explains that we are witnessing the emergence of new economy.
Here are a few highlights:
- Three reasons for the strong market rebound in Q2
- Uncertainties for the future; “the nature of the beast”
- The emergence of a new economy and what that might look like
- Opportunities: companies that will continue to be world leaders post COVID-19
To access the full transcript, click here.
Q2 was the first full quarter in the history of the world where we saw the entire economy shutdown. Nobody knew what to expect. This global shutdown was new to everybody. But as the global economy was shutting down, the stock market experienced a strong recovery, something that many people didn't expect. In fact, you might not realize it, but this last quarter has been the strongest quarter since 1998.
Rana Chauhan (00:38):
So what was the reason behind this strong recovery? Well, let's talk about the three D's. The first D was debt. You saw a tremendous amount of stimulus come into the economy. You saw the government put in payroll protection plans in the U.S. The second D was demographics. You saw the rise of Millennials and them spending, and them becoming the consumers. And the last D, which is actually very important, is the power of disruption. And that's the Amazon-ization of the economy, it's e-commerce, it's streaming, it's productivity, due to technology.
Rana Chauhan (01:28):
Still, we will always have uncertainty. It's just the nature of the beast. We have concerns around the second wave of the virus and what happens to the economy afterwards. But even if we experience a second wave, it's not the same as the first wave because now we're more prepared, we're actually aware of it. We sanitize our hands, we social distance, we wear masks, and we generally take more care.
Rana Chauhan (02:03):
This pandemic may never actually be over. It could turn into something like SARS or AIDS where we just learn to live along with it, and we'll adjust to it. The question I want to ask is, what if the better case scenario happens? What if things actually go right? We're seeing a new economy emerging. As recently as 10 years ago, working from home at the same skill that they're working now would not have been possible. What we've now seen is that companies have proven that they can adapt and that they can be profitable even with working at home.
Rana Chauhan (02:39):
In every sector, companies can be divided into three groups. Those that will thrive and flourish post-COVID, those that will take a little bit longer to recover, and also those that will never recover. Our managers are taking advantage of this new economy and making changes to take advantage of it. Sionna is adding good companies in their portfolio that had gotten cheaper in this downtime, companies like TD Bank, Pembina Pipelines, and Rogers Communication.
Rana Chauhan (03:16):
Marsico is investing in companies that they believe will continue to be world leaders, companies like Google, Amazon, VISA, and PayPal. Picton is focusing on companies that will survive and continues to be stronger, not in spite of the crisis, but actually because of the crisis, companies like Shopify, Microsoft, and Intact Financial. So there are opportunities in all of this.
Rana Chauhan (03:50):
We manage our portfolios for investors to achieve their financial goals without taking unnecessary risks. We believe that during uncertain times, it's prudent to also be defensive. Now's a good time to get the perspective of your financial advisor, to have a conversation around your financial plans, and to ensure that your portfolio is on track to meet your financial objectives. Let's remember, even with the bad news, there are good things happening. Let's focus on those.