Canadian equities have partially recovered from their late March lows. As of May 22, the S&P/TSX Composite Index (TSX) had risen 34% since the March 23 trough, rising for eight of the past nine weeks. Extraordinary policy measures, the reopening of economies, optimism around an experimental vaccine, a rebound in oil prices from highly depressed levels, and strong tech sector gains are all driving the Canadian equity market higher. Although the TSX is still down 12% this year and 17% below the February highs, uncertainty over the path of the outbreak and the development of a vaccine, escalating U.S.-China tensions, and less forgiving valuations could make further gains more difficult. One reason equity valuations sit at historically elevated levels is that the gains in stocks … [Read More...]

We may commute less, socialize online more, shift some of our consumption online, and hold more cash for a rainy day than before. These behavioral changes will likely accelerate many preexisting structural trends, challenging some business models and revenues, while boosting others. One investing trend that is clearly receiving a boost as investors come to terms with the coronavirus shock is sustainable investing. Sustainability has delivered better risk-adjusted performance throughout the crisis than the broad market and, looking at indices over nearly a decade, exhibits similar, if not better, results than found in traditional equity investments in Canada, other developed markets and emerging markets (see the chart below). This has attracted inflows but the assets under management in sustainable funds remains small. In Canada, sustainability has … [Read More...]

Statistics Canada’s (StatsCan) Labour Force Survey released last week for the month of April revealed that the Canadian economy shed another 2 million jobs and the unemployment rate rose by 5.2 percentage points to 13%, the largest monthly increase on record. The cumulative impact of Covid-19-related shutdowns – when including Canadians who are either unemployed or working significantly fewer hours – is 5.5 million or 22% of the working-age population. Encouragingly, almost all (97%) of the newly unemployed in April expect to return to their jobs once the shutdowns end. While the outbreak has undoubtedly brought significant disruptions to Canadian businesses, the impact across sectors and industries has been uneven. For jobs where working from home is the norm and close physical contact is not required to … [Read More...]

This past week brought many new developments related to the future of Canadian monetary policy and its relationship with fiscal policy in the post-coronavirus era. First, Finance Minister Bill Morneau announced on Friday that Tiff Macklem would begin his seven-year term as the next Governor of the Bank of Canada (BoC) after current Governor Stephen Poloz steps down on June 1. Macklem, currently the Dean of the Rotman School of Management at the University of Toronto, was previously senior deputy governor of the Bank of Canada under Governor Mark Carney and recently chaired the government’s Expert Panel on Sustainable Finance, which published its final report in 2019. Second, the Parliamentary Budget Officer (PBO) updated its Covid-19 scenario analysis last week and now projects the federal budget deficit … [Read More...]