Your Financial Review October 2020

Cathy Duval |

All Eyes on Washington


After a sharp rise in August, the U.S. stock market showed increased volatility in September. Early in October, the likelihood of a fiscal stimulus package announced before the presidential election was quite low. In fact, Trump even announced this week he had scrapped talks with congressional Democrats over another financial aid package to help support the economic recovery in the wake of the coronavirus pandemic. Two days only after this shocking announcement, he changed his mind once again! He is now open to piecemeal fiscal stimulus measures, like boosting support for U.S. airlines and providing Americans with $1,200 stimulus checks.

Therefore, a deal in October is still possible. We must keep in mind that without new stimulus, markets are likely to remain choppy between now and the U.S. election on November 3.

According to polls and the betting market, the most likely scenario at this point is a Democrats sweep. This would give them full leeway to reverse half of Trump's tax cuts, as planned in Joe Biden's platform. Such a result could therefore cause turbulence on Wall Street. That said, securing a strong economic recovery through an aggressive tax plan will most likely be the priority in the early days of their mandate. This scenario should not interrupt the upward trend of the stock markets. Rather, it risks accelerating the depreciation of the US dollar, which would further support global growth and foreign stocks.

One lesson from the 2016 election is that anything can happen! Consequently, we believe it best to avoid aggressive positions that rely on a specific outcome. This is especially true today, knowing that there is a non-negligible probability of an election so close that it could require a recount, in addition to the potential for delays caused by mail-in ballots.

We believe that the outcome of the presidential elections shouldn’t have an outsized impact on the direction of equity markets, as it should not put an end to the ongoing economic recovery. This same rationale holds for the persistence of COVID-19 cases, which have unsurprisingly started to rise again in several developed countries recently but without being accompanied by a proportional increase in deaths.


Canadian Stock Markets


Positive GDP (Gross Domestic Product) figures highlighting Canada’s ongoing economic recovery were unable to list the country’s equity market. The S&P/TSX Index closed out September with its first retreat since March.

Losses were not shared equally among industry sectors though, with the more defensive Utilities and Consumer Staples faring better than their more cyclical and growth-oriented peers within the Energy and Information Technology sectors.


U.S. Stock Market


After three quarters in 2020, the S&P500 Index remains the leader by a wide margin, but this status could be challenged in the coming months, especially should there be a Biden victory.

News that the economy had added 1.37 million new jobs in August did little to stop the S&P500 Index from slipping in September, closing out the month with its worst performance since March. Unlike Canada, most sectors were negatively affected but particularly Energy, as well as tech-related sectors.


Oil and Gold


Following a resumption of social distancing and lockdown measures in many developed countries, demand for crude oil waned last month, sharply reducing gains made over the previous quarter.

In September, gold prices declined for a second consecutive month as inflation expectations declined along with the diminished prospect of U.S. fiscal stimulus. Ultimately, we still expect gold to fare well as the ongoing economic recovery should support a gradual rise in inflation, even if fiscal measures are smaller than initially expected and/or are delayed. But, the most optimistic scenario for gold prices is clearly the most inflationary one: a Democratic sweep allowing the party to substantially increase public spending as outlined in their platform.


Our Portfolio Strategy and Investment Outlook


While the ability to weather the storm caused by the pandemic is important in the near-term, we continue to keep a long-term perspective, investing in solid companies that can both sustain the current period of economic uncertainty and excel competitively in a post COVID-19 world.

We will continue to closely monitor the situation over the coming weeks, and we stand ready to adjust our asset allocation once we have more clarity on the economic and geopolitical environment under which we will operate in 2021.


Should you have any questions, please feel free to contact us.  


We wish you a very colorful and healthy autumn period!


Cathy and Sounda

514 871-3474

Disclaimer: The opinions expressed herein do not necessarily reflect those of National Bank Financial. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. National Bank Financial is an indirect wholly owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank Financial is a Canadian Investor Protection Fund member (CIPF)