Col 157 - Market Update
Well, it’s an interesting way to end RRSP season anyways. This week so far we’ve seen the words “Plunge”, “Bloodbath”, and today, “Wallop” in the investment headlines. And as of today it’s being called official – we’re in a market correction.
I know many of you are going to be saying “oh thank goodness, finally. Now maybe Meagan will shut-up about this ‘pending recession’, she’s been doomsaying about”.
But unfortunately, you’d be wrong. There’s still much more to chat about. Because I actually think this thing could get kind of serious.
This is the kind of market drama that could develop into the deep-bottom correction we’ve been planning for. All of that boring ‘sell-high’ where we’ve systematically taking our gains and parking them into something ‘defensive’, all that sitting by the sidelines earning our modest stable returns while the markets reach all-time highs, this could be the good solid market correction we’ve been strategizing for.
One of my favorite soundbites:
“A plan doesn’t fail in the bad times. It fails in the good times. We just don’t find out about it until the bad times”.
Ready to find out that your plan has been set up on the right track, with an appropriate risk tolerance, and lots of downside protection? Is there really a way better way to realize that your vest is bullet proof (or not), than by shooting at it? Lol.
So even though you haven’t asked for it (I’ve literally had ZERO calls so far with market concerns – that’s how amazing you guys are!), and you’re all totally grounded with the right frame of mind, here is a bit of a quick FAQ-style info piece.
So you think this thing might be serious?
Yeah. I kind of do. There are parts of the puzzle that still seem unclear, and that’s the part that’s worrying.
- The number of new infections outside China has now overtaken the number of new infections inside China
- Chinese reporting may be ‘soft’, due to the lack of independence of their regulators, and the rurality of their population (although these are also issues common in other countries)
- Major systems are closing down as precautions. I think the most notable is that Japan has now shut down all schools nationwide until the end of March.
- The word ‘pandemic’ is being thrown around, by respectable institutions such as the CDC.
- The US government is preparing for a shortage of face masks.
- Even though the death toll as a percentage of confirmed cases is less than the SARS outbreak, the rate of spread is significantly higher.
Why is a global health concern affecting the markets?
- Very basically speaking, if global travel is reduced, people can’t go to work. When they can’t go to work, companies make less money. The stock market is a reflection of income expectations for listed companies. Therefore, when income expectations are reduced, stock market valuations are reduced.
And then how am I affected?
- Realistically, if you’re going to live somewhere, Canada is a pretty good place to be. As a country, we’ve got an excellent health system, and our population density is low, so from an imminent threat point of view, we’re actually probably okay.
- I would, however, definitely be stocking up on canned goods. The kids and I are going to go tonight, after the library (we need more milk anyways).
No, no. I meant in terms of my investments?
- We’ll be affected, for sure. But we’re actually in really great shape going into this.
- In terms of income: Anyone who has regular income coming from their investments has at least 3 years (more often 5) set aside in either daily interest, or GICs. It’s part of our normal process, and we’ve operated that way for years. So if you’re getting income from your investments, you have three years before you’ll have real reason to panic. And by then, you’ll probably be out of canned goods, so there will be quite a few other things to be stressed about as well.
- In terms of downside: Anyone who has a larger, more customized portfolio, we’re getting ready for action. We’ve spent a couple of years trimming back the growth portion as it climbed, and putting that excess into defensive holdings. Anyone with a fund-of-funds mandate, the internal workings of your portfolio automatically rebalance this way, so we’re well prepared there as well.
- Realistically, even though I believe there is still more downside to be seen, I think we’re past the point where capturing more gains really makes sense. Basically, we’re as prepared as we’re going to get (which, again, is actually really well prepared), and it’s time to look forward to the point where we get back in.
- In terms of upside: The Toronto Stock market is down 7.09% in a week (end date Feb 27). The DOW (Americans) is down 12.2% in the same time frame. While this is technically a correction, and it’s too soon to make a prediction on the extent it will continue to fall. I think there is a lot more to play out here. My ideal target would be to let this correction double from where it is today before we start reinvesting back in. Crashes normally happen pretty quick, but then so does most of the recovery. If we can hit a general 20% correction across the “markets”, then I would be really comfortable starting to rebalance back to our target asset allocations, and rolling over the defensive positions back into active players.
- Realistic impact: I know sometimes it sounds like I’m talking big, but because we’re not stock-jockeys, and are very goal-centric, for most portfolio’s we’re realistically talking about a 3% to 5% reallocation. It’s exciting to me, for sure! But if I do my job well, you shouldn’t be nearly as excited about this as I am.
I’m sure tonight’s headlines will be interesting, since the TSX halted trading this afternoon. But they’re saying that’s on a technical glitch (ie. It broke), rather than being overwhelmed by people selling out.
Not that I would ever hope for a recession, but I’m also hoping that by the time this write-up is approved, the information is still relevant. When we get to the time & place where it’s a good call to get back in, I’ll be doing a huge blitz and contacting everyone directly. Until then, stay tuned!
Meagan S. Balaneski, CFP, R.F.P, CLU, CIM
Manulife Securities Incorporated
The opinions expressed are those of Meagan S. Balaneski, and may not necessarily reflect the views of Manulife Securities Incorporated
Meagan S. Balaneski can be reached at firstname.lastname@example.org