From famine to feast is the simplest way to describe the stock market of April 2020. North American equity indices punched out double digit advances in response to unprecedented monetary stimulus and fiscal accommodation combined with an apparent comfort that the viral contagion was going to be contained in a timely fashion. Clearly looking beyond the plunge in the economy and corporate profits, the graph on the below left shows that as of late April, the S&P 500 had enjoyed its sharpest recovery off a bear market bottom in fifty years. This rally occurred after stocks had lost 42% of the return generated during the recent bull market as highlighted by the far right hand bar in the bar chart on the below right.
It’s hard to believe that it’s been six weeks since the team at Forge First has seen each other. Yet our operations and investment processes have remained fully intact and running smoothly. Do we really need that office space? Do urban families really need a 2nd car? Of course I’m just joking when it comes to these questions, and while I am looking forward to that glass of wine at a bar with friends or watching the Leafs or Raptors live, there’s little question that some habits will change and other trends will be reinforced, both of which having ramifications for equities.
For many reasons it’s an understatement to say the relationship between Prime Minister Trudeau’s Government and Canada’s energy patch is strained. Now desperate for help from the effect of the twin punches of COVID-19’s demand shock and the supply jolt arising from the Saudi Russian price war, Canada’s energy sector has never been in such critical condition. Waiting for Ottawa’s promised life support program for the past month, Trudeau’s team finally delivered its first dose of medicine this past Friday. While it’s a far cry from the $30B bailout prescription the sector was seeking, the proposals appear to be an okay start, though as always, the devil will be in the details.
March 2020 was an awful month for humankind, financial markets and our funds. North American equity indices saw total return losses of 12.35% for the S&P500 and 17.38% for the TSX. The waterfall declines were fuelled by the excess leverage in corporate credit and shadow banking, largely in the U.S. followed by a more general selling of financial assets. While the rapidity of the declines had the years 2008 & 1929 on the lips of investors, unlike those bears, this attack was triggered by an exogenous event. Global equities lost US$7.88T of their value during the month of March 2020 or US$14.88T since their high on February 19th.