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.
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