Your July 2020 Market Review

Cathy Duval |

Great Recessions, Great Rebounds, Now What?


Judging by the most recent data, it certainly seems that the trough in economic activity is behind us, which technically means that we are indeed early in a new cycle. For instance, U.S. retail sales have already recovered 62% of their decline. Meanwhile, a consensus expectation of 8 million job losses for May turned out to be quite inaccurate, with the country actually adding 2.5 million new jobs over the period.


If history were to repeat itself, we should expect the upward trend in equity markets, which is so far highly similar to what we saw between March and June 2009, to carry on in the coming year. However, the rally may be due for a break over the next few months.


Moreover, it is normal for a post-crisis rebound to occur almost entirely via an increase in valuations (measured by the price/earnings ratio). Nevertheless, stocks are unlikely to be driven any further by valuations. It is now up to corporate earnings to take over as the main contributor to returns.


Now, let's not delude ourselves. While looking back in history is always a good starting point to formulate an outlook, the list of fundamental differences between 2009 and 2020 is long. At the top of it is a pandemic that clearly has not yet had its last say and is, therefore, putting the pace of recovery at risk. Another fundamental difference is that a U.S. Presidential election is due in just 4 months.


But, in the end, the most important difference between 2009 and 2020 is perhaps the magnitude of actions taken by central banks and fiscal authorities. Their near-perfect coordination will certainly create new challenges, but the fact remains that it’s a major tailwind for the ongoing recovery.


Canadian Stock Markets


Taking stock of Canadian Equities at the year’s halfway point, we find an extremely wide range of performances across sectors.


A preference for more defensive sectors has helped Materials and Consumer Staples post positive year-to-date returns, while certain sectors such as Real Estate and Energy more deeply affected by recent lockdowns remain firmly in the red.


U.S. Stock Market


Following an impressive rebound in risk asset prices and valuations in April and May, June saw the S&P 500 take a breather finishing relatively flat, unnerved by a reacceleration in COVID-19 cases in the final weeks of the month.


Stocks in the Technology and Consumer Discretionary sectors outperformed the more defensive Health and Utilities sectors.




It was one rollercoaster of a quarter for Crude oil, as the dramatic drop in the price of a barrel of WTI* back in April was followed by a surge over the following two months, spurred on by OPEC+** and U.S. production cuts as well as renewed demand from end users as commercial frontiers are gradually reopened.


Meanwhile, now trading near an 8-year high, gold remained popular with investors last month, with its recent strength partly attributed to the fall in real rates (rates after inflation) and a desire to hedge against inflation risk that could arise at some point in the future.


*WTI: West Texas Intermediate

** OPEC+: a group of 24 oil-producing nations


Our Portfolio Strategy


We recognize the vulnerability of the stock markets after their strong gains in recent months and the inherent uncertainty of the outcome of the pandemic, but we believe that we must also take into account the strategies of unlimited intervention of various governments and central banks ready to do whatever it takes to limit irreversible damage to the economy.


We are comfortable with our current asset allocation which, to date, contains an additional weighting in short term fixed income which will be used to seize opportunities that may arise this year.


Our portfolio management method is based on a long-term, personalized strategic plan for our clients, adaptable to change and subject to frequent monitoring. Our investment decisions are derived from an analysis of fundamental long-term characteristics and adjusted to today's markets.


We invite you to contact us if you have any questions.


Looking forward to speaking with you!


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)