Manulife Investment Management - commentary on market correction

Manulife Asset Allocation Team

  • While volatility did not subside during the week as there were significant peaks and troughs, markets did end the week mostly flat. Both the U.S. Fed and Bank of Canada issued surprise rate cuts last week, that pushed yields to all-time lows, while gold (GLD) pushed higher.  All of this is largely old news, as an oil price war over the weekend driven by the Coronavirus, between Saudi Arabia and Russia pushed oil dramatically lower with global equities following suit on Monday.
  • The opportunistic sleeve held up well again during the volatile week (week ending March 6th).  The position in U.S. Healthcare performed particularly well after strength from U.S. Presidential candidate Joe Biden on Super Tuesday sent shares higher.  The healthcare ETF (VHT) returned 4.28% vs. 0.68% for the S&P 500.  Our position in gold (GLD) also rose 4.61%.  Conversely, our position in Canadian energy equities (XEG) fell 10.99% as oil prices continued to fall.  However, we did eliminate that position on Friday (March 6th), which will be a benefit given Monday’s early market moves.
  • Given what has transpired over the last week our portfolio views have shifted modestly.  Our 2020 view was that we should expect extremely accommodative central banks and a global growth rebound in the second half of 2020—market dips were worth buying on improving earnings growth outlook.  We continue to believe that the coronavirus outbreak is a temporary hit and risk off dips worth buying, but now feel market uncertainty and weakness may be with us longer than initially expected.
  • There is increased risk of a global recession and we are operating under the assumption that the U.S. will contract for at least one quarter.  There is also an increased risk of a credit crisis with the oil price shock increasing that risk.  For tactical, shorter-term horizon portfolios we are closely watching market sentiment, fundamentals and technicals. Ultimately, we believe the temporary disruption caused by the coronavirus will pass and structurally low interest rates along with good financial conditions will lead to an improving growth outlook and higher equity prices later this year.  We will position accordingly for near term volatility and the future resumption of risk taking in the market.

The views expressed are those of the sub-advisor of Manulife Investment Management and are subject to change as market and other conditions warrant. Information about a portfolio's holdings, asset allocation, or country diversification is historical and is no indication of future portfolio composition, which will vary. Certain research and information about specific holdings in the Fund, including any opinion, is based on various sources believed to be reliable. All overviews and commentary are for information purposes only and are not intended to provide specific financial, investment, tax, legal, accounting or other advice and should not be relied upon in that regard. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. The commentary does not constitute an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or investment product. This material should not be revised as a current or past recommendation or a solicitation of an offer to buy or sell investment products or to adopt any investment strategy. Manulife Investment Management is not responsible for any damages or losses arising from any use of this information

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Frances Donald

Frances Donald, 

Global Chief Economist and Global Head of Macroeconomic Strategy, Multi-Asset Solutions Team, Manulife Investment Management

Manulife Investment Management

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