Genus Weekly In Focus – Addressing COVID-19 Concerns Week-29

Grant Conroy: [00:00:03] Hi and welcome, everybody, to the Genus weekly video. This is week 29 and I am Grant Conroy, portfolio manager at Genus. And joining me this week is Justin Hahn, who is a macro research strategist or analyst at Genus. Hi Justin.

Justin Hahn: [00:00:18] Hi everyone.

Grant Conroy: [00:00:18] So it’s the final week of the third quarter and what a week it’s been. Just as everyone’s aware, Justin and I kind of have been building up to this through the week. And then obviously things changed last night with Trump testing positive. So it’s definitely been an eventful week. But Justin, can you tell us a little bit about what’s going on in the markets this week?

Justin Hahn: [00:00:45] Yeah, so this week we saw a sharp rebound in tech after the small correction we had earlier in the week and earlier in the month actually. We saw oil companies broadly underperform the sector with materials also lagging behind. Despite the number of issues going on in Washington, PMI still remains strong as the economy continues to be in the V word reversal into the expansionary territory.

Grant Conroy: [00:01:11] Ok, so basically staying on track of the recovery that we’ve seen so far, I would say. And Trump testing positive last night or overnight. What are the implications for that?

Justin Hahn: [00:01:23]  Trump testing positive last night adds more uncertainty to the upcoming elections, but we don’t really know too much more than that as the fundamentals still remain strong. During these times of uncertainty, we, as always, like to focus on the underlying fundamentals and economic numbers, and those still continue to strengthen and show an economic recovery is in place. What we do know, it will likely hurt Trump’s campaign a bit due to him really hosting these large rallies and getting more momentum and support. And that will be on pause for the next two weeks at least.

Grant Conroy: [00:01:56] It’s not ideal from a Trump camp perspective, I would imagine. So Justin on the politics front, we saw the start of the presidential debates this week. How do we account for those when we’re investing?

Justin Hahn: [00:02:09] So when we’re investing, these debates are very minimal in terms of giving us any new information. So we are again counting on it for any big investment decisions, but we are noticing that the markets are becoming less and less concerned about a Biden victory and have rallied since the debates. We saw that Biden is trying to position himself away from the Bernie Sanders crew of the very left and moved towards the center. And if he wins, although it is a negative for taxes, investors are seeing more positives in terms of fiscal stimulus. We’ll see large infrastructure spending as well as globalization, hopefully in terms of trade talk with Europe and China and all the other countries and more stability there. The debate in general going into it, Biden did have a slight lead and after it, we didn’t see any clear victory. So Biden, by default, is came out ahead after those debates.

Grant Conroy: [00:03:05] I think there’s been enough commentary. I won’t try and reiterate what everyone has probably read in the press on the on the debates, but but it’s good to know how the markets are reacting to that. So thank you. I’m staying on the covid front. The case numbers seem to be creeping up all around the world. How is that affecting our decision making?

Justin Hahn: [00:03:26] So in Canada, there seems to be some concerns about a second wave with some of some provinces adopting some new measures. But we don’t see it affecting the markets or our investment decisions too much. We believe the markets are looking through this and ignoring the second wave as there’s help on the way in terms of vaccine. And we’re better able to deal with cases as well as function due to the new conditions that we have. We also think that a giant lockdown and another full blown lockdown is unlikely as we’ve been through it before and we see how much it hurt the economy. And I don’t believe we don’t believe that the governments can hold that much debt and keep increasing their debt to help support the citizens.

Grant Conroy: [00:04:13] And I know numbers here in BC obviously seem to have leveled off and may be improving slightly, but still a long way to go, I guess. With regards to the job and the stimulus that we’ve seen that help people through this period. There’s been a lot of renewed discussion in the U.S. This week about the additional stimulus coming. Are we banking on that happening from an investment perspective?

Justin Hahn: [00:04:35] Yes, so we are hopeful that we do get a second stimulus bill to help the economic recovery continue and continue its momentum, but we’re not counting on it for investment decisions. The economy has been improving and has been improving for the past quarter. So it kind of helps mitigate the amount of impact and the need for the second stimulus bill. There are some positives coming out yesterday, especially with the Republicans, with Steven Mnuchin coming out and saying they’re going to move higher in their counter bid. But the Democrats are still looking for about two point two dollars trillion. But there seems to be more talk and more need and want from both sides of getting the deal done. So the extra one point six million for up from one three, one point six trillion up from the one trillion, includes higher amounts of stimulus checks, as well as unemployment benefits that were seen in the first round.

Grant Conroy: [00:05:28] Right, well, and with regards to our portfolios, given that we’ve just gone through Q3 and statements will be out in a few weeks, can you give us a little bit of a preview and tell us some of the things that we’ve done in the portfolios through the third quarter?

Justin Hahn: [00:05:43] Yeah, so from an asset mix perspective, we saw in quarter three during the middle of the month, we moved some money off of equities due to the sheer momentum and the speed the market recovered. We took some money off of there and moved it into corporate bonds. Well, going into quarter three. We also saw, again, a large tech rally and outperformance and the outperformed the broad market in September. So within our portfolios, we’ve reduced some of the tech overweights. And considering it’s great run and we’ve moved the money into more cyclical names such as industrials and consumer discretionary sectors. In addition, we’re closely monitoring the value trade to find opportunities when we see a full economic recovery unfold and those stocks tend to outperform during that time period.

Grant Conroy: [00:06:33] Got it. So to try and wrap all that up together, if I’m hearing it correctly, we still think that the economy is on a solid footing and it’s going to continue to to do better. There’s obviously a bit of near-term choppiness with the politics and covid that’s going on. But we position the portfolios to benefit a little bit from both sides, a bit more defensively, but also some of the consumer pick up and some of the growth that are still out there is, if that sounds about right. So thank you very much for that, Justin. It’s a very illuminating couple of comments there and just what we’ve been up to for the week. Thank you for watching. And if you do have any questions and please feel free to reach out to your portfolio managers and enjoy the sunny weekend. Goodbye.

Justin Hahn: [00:07:16] Thanks everyone.