April 2020

Stabilization

After a severe shock to financial systems in March, global markets rebounded sharply in April. Although the virus continued to spread, some countries saw infection rates begin to peak and now plans are being developed to strategically re-open the global economy. Central bank and government stimulus have been substantial and are crucial in mitigating the impact to individuals and businesses. Long-term ramifications are currently unknown but will likely be significant.

Volatility on the S&P 500 continued to trend down, as measured by the CBOE Volatility Index. Developed Markets performed better than Emerging Markets and Growth stocks outperformed Value over the period. The S&P 500 had a total return of 12.68%¹ in April, down 14% from the 52 week high reached in February. As of April 30th, reported 1Q earnings for S&P 500 companies were missing estimates in aggregate by -0.5%². For the first time in history, a severe demand shock sent the prices for some futures contracts on West Texas Intermediate negative. This is in part due to the nature of how these contracts are settled at maturity. To address the issue, OPEC+ implemented cuts to production.

Uncertainty is high as the global economy works to emerge from widespread shutdowns. The duration of the shutdown remains to be seen and what lingering effects this will have on energy use, corporate and public default rates, and global consumption. We remain defensive while awaiting opportunities to present themselves. We acknowledge the drastic impact on even the basic functions of a company’s operations and have adapted our analysis to account for this. While cautious, we also feel that central banks have shifted the balance of risks in favour of holding quality businesses and remain committed to our portfolio positioning.