- Canada has made progress against COVID-19 even as the global economy continues to struggle with the disease.
- A second wave of the virus remains a significant concern and is expected to result in continued stock price volatility.
- While accurate pricing of securities is a challenge in this environment, we believe that investing based on a prudent investment philosophy and process is as important now as it was during the peak of the bull market.
“There are decades where nothing happens; and there are weeks where decades happen.” - Vladimir IIyich Lenin, first head of the Soviet state (1917 to 1924)
In the first 26 weeks of 2020, much of the world faced some of the most challenging crises of the past century in terms of public health concerns, economic upheaval and social unrest. The novel coronavirus, which causes the disease COVID-19, rapidly became one of the deadliest pandemics since the 1918 Spanish flu. Global efforts to slow the COVID-19 infection rate led to government-mandated economic shutdowns that rival the worst years of the Great Depression (1929-1933). The brutal killing of George Floyd, an American black man, by a white police officer in Minneapolis, Minnesota, sparked a wave of global outrage and protests.
Against a bleak global backdrop, Canada has made progress against COVID-19. As Exhibit 1 shows, the number of new cases measured on a weekly basis has fallen from a peak of 12,590 during the week ended May 4 to a current reading of 2,270 as of June 29. That’s the lowest total in more than three months. The death rate is 23 per 100,000 population, which compares favourably to the U.S at 38. Quebec suffered the worst experience, recording a death rate of 65 per 100,000 population, followed by Ontario (18) and Nova Scotia (6).
Although the human cost in terms of lives has been less than in the U.S. or in much of Europe, the economic impact has been just as devastating. Exhibit 2 is a display of monthly gross domestic product (GDP) measured on a year-over-year percentage-change basis. As of March, Canadian economic activity was 5.8% below the year-ago level. FactSet’s survey of consensus estimates for full year 2020 indicates a 13.95% decline, versus an estimate of -5.1% for the U.S. Service-producing industries recorded their worst-ever year-over-year plunge in March. Goods-producing industries also fell, but not nearly as much.
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Cyclical sectors, industries or stocks are those whose performance is closely tied to the economic environment and business cycle. Cyclical sectors tend to benefit when the economy is expanding.
Duration is a measure of a security’s price sensitivity to changes in interest rates. Specifically, duration measures the potential change in value of a bond that would result from a 1% change in interest rates.
Earnings multiple is equal to the stock price divided by earnings per share. It is expressed in years. For example, an earnings multiple of 10 means that it would take 10 years of earnings to equal the stock price.
P/E ratio is equal to a company’s market capitalization divided by its after-tax earnings. The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings. A forward P/E ratio is a current stock’s price divided by its estimated earnings per share over the next 12 months.
Value refers to the tendency of relatively cheap assets to outperform relatively expensive assets.
Composite Index of Leading Indicators: used to measure turning points in the business cycle. The metric looks at qualitative data on short-term economic movements. It is used to predict the direction of global economic movements in future months.
Industrial Production Index: an indicator used to measure monthly output in the manufacturing, mining, electric and gas industries.
MSCI EAFE Index: an unmanaged, market-capitalization-weighted equity index that represents the developed world outside North America.
MSCI Emerging Markets Asia Index: designed to measure the performance of the large- and mid-cap segments across nine emerging-market countries in Asia.
MSCI Emerging Markets Europe and Middle East Index: captures large and mid-cap representation across 8 emerging-market countries in Europe and the Middle East.
MSCI Emerging Markets Index: a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging-market equities.
MSCI Emerging Markets Latin America Index: designed to measure the performance of the large- and mid-cap segments across six emerging-market countries in Latin America.
MSCI USA Index: designed to measure the performance of the large- and mid-cap segments of the U.S. market. The Index covers approximately 85% of the free float-adjusted market capitalization in the U.S.
MSCI World ex USA Index: a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, not including the U.S.
Purchasing Managers Index: an indicator of economic health for manufacturing and service sectors. Its purpose is to provide information about current business conditions to company decision makers, analysts and purchasing managers.
Russell 1000 Index: includes 1,000 of the largest U.S. equity securities based on market cap and current index membership; it is used to measure the activity of the U.S. large-cap equity market.
Russell 2000 Index: includes 2,000 small-cap U.S. equity names and is used to measure the activity of the U.S. small-cap equity market.
S&P 500 Equal Weight Index: an unmanaged index that consists of 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market. In comparison to the market-weighted index, it gives the same weight, or importance, to each stock. The smallest companies are given equal weight to the largest companies.
S&P 500 Index: an unmanaged, market-weighted index that consists of 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market.
SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.
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