The economic impact of the extraordinary measures taken by governments all around the world to flatten the COVID-19 pandemic curve is highly uncertain. The outcome will depend on the evolution of the virus and the intensity and efficacy of containment efforts. Economic data continue to show severe economic disruptions associated with COVID-19 and only limited signs of a recovery so far. The dichotomy between the supply and demand side is concerning as evidenced by the re-opening of some economies where consumers remain on the sidelines. Central banks are now operating at the limits of what they can do to support aggregate demand. Consequently, we are entering an era of more active fiscal policy. We are monitoring these developments and have maintained our previous Recession Outlook for the U.S. economy to reflect a Recession that began in March and extends through to the end of the year.

Emerging Market central banks are cutting rates aggressively, allowing their currencies to depreciate while supporting domestic demand. This is bearish for EM currencies and sovereign spreads in the near-term but will lead to stronger economic recovery down the road. In China, industrial production rebounded to a 3.9% annual growth rate in April while retail sales remained weak as they contracted at an annual 7.5%1.

In this crisis, the U.S. government is ramping up its deficit much faster and much more aggressively than it did in 2008. A corporate bond-buying program was announced by the Fed in March, as part of a package of pandemic rescue measures. The program, which is managed by BlackRock, will take $75 billion in equity from the Treasury and leverage it 10-to-1, giving it up to $750 billion to buy corporate bonds for the first time in its history, starting with bond ETFs2. On April 8, the Federal Reserve widened the credit ratings of corporate bonds it will buy to include recently downgraded corporate bonds that have a rating no lower than BB-, as well as ETFs that have exposure to eligible non-investment grade corporate bonds3.

The U.S. trade deficit widened in March as a decline in exports outweighed that in imports. The service sector declined, driven by the collapse in international tourism. The April ISM non-manufactur­ing index declined 10.7 points to 41.84. The jobs report showed that U.S. payrolls plunged by 20.5 million in April as the unemployment rate skyrocketed to 14.7%5. The consumption basket of U.S. households has shifted in a way not reflected in the CPI’s basket. People are buying more food from the grocery store, more gym equipment, etc. while not spending money in restaurants and hotels, suggesting that the basket faced by the consumer is experiencing greater inflation than what the BLS measures. In Canada, real manufacturing sales fell 8.3% in March, and Automotive News reported total auto production of zero units in the month of April6. Existing home sales fell by 57% in April7.

After March’s carnage, April offered a welcome rally. The S&P 500 gained 12.8%, the best monthly performance since January 1987. The S&P MidCap 400 was up 14.2% while the S&P SmallCap 600 gained 12.7%. In Canada, the S&P/TSX Composite gained 10.8%. The pandemic is only one of two shocks, the other being global energy prices. This weakness has also been apparent in the Canadian dollar. Northern European equities outperformed, while Southern Europe lagged as politicians squabbled over the form and magnitude of potential relief for the nations hit hardest by COVID-19. The S&P Europe 350 gained 6.1% on the month while the S&P United Kingdom gained 3.5%.  Asian equities began to recover in April, with the S&P Pan Asia BMI up 8.5% while the S&P China 500 gained 6.1%.

In May, we maintained the asset allocation between Equities and Fixed Income but adjusted our exposure within Fixed Income. We added Mortgage Backed Securities while removing Municipal Bonds, the 3-7 year Treasury was added to replace the 7-10 year Treasury, and the 20+ year Treasury was removed with the allocation going to Mortgage Backed Securities and Gold for the Growth and Aggressive Growth Models. Gold continues to be present in all models as it performs well in high risk, low yield environments as a risk-free asset class.

The market is reconciling a deep global recession of uncertain length, with a V-shaped recovery in financial markets supported by an extraordinary central bank back-stop. We will continue to monitor the data for growth, inflation, and recession signals from employment, consumer spending, business sentiment, Fed policy, the yield curve, inflation, and global economics. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame , President and CIO


Trading Economics, China Industrial Production and Retail Sales. April 2020.

The Federal Reserve. March 23rd, 2020.

The Federal Reserve. April 8th, 2020.

Trading Economics, U.S. ISM. May 5th, 2020.

Trading Economics, U.S. Unemployment Rate. April 2020.

Trading Economics, Canada Manufacturing Production. April 2020.

CREA Monthly Housing Statistics. May 2020.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. April 30, 2020. Index performance is based on total returns and expressed in the local currency of the index.