March 31, 2020 | By: Kevin McCreadie

Optimistic, but Still Cautious

3 min read

AGF’s CEO and Chief Investment Officer gives his latest take on the COVID-19 crisis and whether stock markets are beginning to stabilize.    

What is your current sentiment towards markets?

I’m more optimistic this week than last. We’ve had a nice rally in stock markets on new stimulus announcements in the U.S., Canada and elsewhere. And while the numbers of those infected by the virus continue to rise dramatically in the U.S. and other parts of the world, there are some encouraging signs in China (and to some extent Italy) that the initial wave of the pandemic has peaked. It’s going to remain viciously volatile over the next few weeks, but it seems like we’re starting to move in the right direction.

Of these factors, how important is the U.S. government’s massive US$2-trillion aid package?

I think investors had been disappointed leading up to it by the pace being set in Washington. There's always theatre involved as both Republicans and Democrats jockey for what should be included in a package this size. So, it took longer to get done than a lot of people thought it should, but once it became clear that the bill was taking shape and would be approved, markets responded positively. When you combine the fiscal package with what the U.S. Federal Reserve has announced in terms of loan programs, it’s nearly one quarter of the country’s GDP. So, it’s a solid start, despite being late, but more aid will be needed as we move through the next month.   

Are you concerned at all about the longer-term implications of such a massive spend?  

America’s federal deficit will now go well over US$3 trillion, so servicing that debt may end up being a big problem. But that’s down the road and desperate times call for desperate measures. For now, it is critical for governments to step in and limit the damage by helping support people and industry through this crisis. This is true especially for small and medium-sized businesses that are bearing the brunt of it.

How much credit should the U.S. Federal Reserve get for soothing markets in recent days?    

The Fed has really stepped up the past two weeks and Chairman Jay Powell has taken a page out of Former European Central Bank Chairman Mario Draghi’s playbook during the Euro crisis a few years back by assuring markets that the Fed will do whatever it takes to provide monetary support to the system. Some might question whether they have enough ammunition left, but there are still measures it can take and the message is reassuring.

The number of new COVID-19 cases in the U.S. continues to skyrocket, but in China, the number of locally transmitted cases has fallen to zero two months after the initial lockdown in the country’s Hubei province. What signal does this dynamic send to investors?

I think it’s important to recognize that as the virus waxes and wanes across the world so too have global markets to some extent. Chinese equities were probably the hardest hit initially, but have outperformed more recently. Meanwhile, India’s stock market sold off dramatically when the country announced it was going into lockdown earlier this week. So, there are going to be differences in how regional markets perform based on how the virus spreads from here. This may lead to new opportunities, but also new risks. And as the data plays out, getting economies back to work, while the virus is still spreading, will be a major consideration for investors.  

So, we’re not out of the woods yet?

Again, the question will be how quick we can get the virus under control and how much liquidity we can put into the hands of small businesses and consumers to make sure the damage is not long lasting in terms of a recession. But there are going to be some ugly headlines about the spread of the virus in the days ahead and dour news about the dramatic impact it is having on economic growth. U.S. jobless claims, for instance, hit 3.28 million people last week, quadrupling the previous record. And the data will probably get worse before it gets better.    

On a more personal note, what’s it been like for you the past few weeks?

It’s been extremely challenging, but I’m proud of how our firm has responded. We have placed the health and wellbeing of our employees, clients and communities first in all our actions. And we continue to function at a high level and remain ready and able to navigate through unprecedented market volatility.

Kevin McCreadie is Chief Executive Officer and Chief Investment Officer at AGF Management Ltd. He is a regular contributor to AGF Perspectives.

The commentaries contained herein are provided as a general source of information based on information available as of March 30, 2020 and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

AGF Investments is a group of wholly owned subsidiaries of AGF and includes AGF Investments Inc., AGF Investments America Inc., AGF Investments LLC, AGF Asset Management (Asia) Limited and AGF International Advisors Company Limited. The term AGF Investments m ay refer to one or more of the direct or indirect subsidiaries of AGF or to all of them jointly. This term is used for convenience and does not precisely describe any of the separate companies, each of which manages its own affairs.

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