here has been no shortage of optimism in the financial markets as evidenced by the recent advances in the indexes. Most recently, markets have reacted positively to the prospects of several viable vaccines which will hopefully be available by the New Year.
The economic damage resulting from the response to Covid-19 will not be tallied for some time. The sudden collapse in business activity will bankrupt many companies and industries.
The first quarter of 2020 started off well but didn’t end that way. At the beginning of the year, we expressed concerns over the level of market valuations, rising global debt levels, international trade disputes and their effect on supply chains and business planning as well as other geopolitical tensions. Admittedly, we did not factor in a sudden GLOBAL PANDEMIC!
The key is to stay focused on the longer term. As Warren Buffett has stated: "The stock market is a device to transfer money from the impatient to the patient." Conditions willultimately improve. Keep calm and carry on.
Global geopolitical tensions have spiked since the American raid that killed a prominent Iranian general. The unrest in the Middle East just adds to other concerns surrounding global trade disputes, U.S.-China relations, South Asian border disputes, European fragmentation and decelerating economic growth, among others.
Global economic growth has been anemic in the expansion since the Financial Crisis. U.S. real per capita GDP has advanced at a rate of 1.5 per cent during this period, the slowest expansion rate over a decade since the 1950s. The U.S. economy has done better since Donald Trump took office, but the latest estimates are for slower growth going forward.
I write this outlook on the day of the federal election. While the immediate aftermath may cause some investors concern, in the long term it’s fundamentals that drive markets. Hopefully, politicians will take some concrete action to make our country a desirable destination for capital and investment.
Economies are the cumulative reflection of the myriad of transactions taking place every day. In order for a transaction to take place, there must be a buyer and a seller. Both parties to the transaction believe that they are receiving adequate compensation, no matter on which side of the trade they reside. In financial markets, buyers and sellers are expressing differing expectations for the object being sold. Markets have continued to rise for a long period of time, indicative of there being more optimism that economic conditions will continue to improve.
Trade issues continue to cloud the economic outlook as the tariffs constrain spending and companies seek alternative supply routes in their attempts to minimize the higher costs resulting from the implemetation of the tariffs. Geopolitical issues are contributing to the growing uncertainty as we face federal elections year in Canada and the US, turmoil in the UK with respect to Brexit and increasing tensions the Asia (Hong Kong) and the Middle East.