Global growth momentum continued into October, as industrial activity and trade readings from the U.S., China, and Japan pointed upward. Good news regarding various vaccine trials increased confidence that the pandemic will be less of a drag by Q2 2021. In the near term however, downward revisions to growth reflect recent restrictions on activity across several U.S. states and across developed markets including Canada, the Euro area, Japan, and the U.K. We expect to see global GDP contract in Q4 2020 and Q1 2021, followed by a slow recovery. As we do not see a clear path through the chaos resulting from the COVID-19 pandemic, traditional business cycle analysis does not fit. Rather, this is in line with the shock of a natural disaster. We have maintained our Recession outlook over our forecast horizon of the next 12 months.

In China, virus management has largely been successful. The Chinese economy’s first-in, first-out status regarding the COVID-19 shock is clear in the swings in its industrial activity. After plunging 13.5% year over year in February, industrial production growth resumed when factories re-opened and workers returned with IP expanding by 6.9% year over year in October.1

The renewed lockdowns in Europe appear to be turning the tide on the surge in infections. Countries that have put aggressive restrictions in place, like France, Spain, and Belgium, have seen the greatest improvement. On November 5, the Bank of England announced it would inject £150 billion into the U.K. economy to help soften the impact of the new lockdown. Large fiscal supports there have pushed the deficit close to 11% of GDP this year.2

In the U.S., October’s durable goods data suggest the economy started the fourth quarter on a strong footing, but the second consecutive weekly rise in initial jobless claims is a warning sign that the latest spike in coronavirus cases has triggered a new bout of economic weakness. U.S. jobs fell 9.3% from their peak and have recovered less than half of this decline thus far.3 Close to 10 million U.S. workers are likely to lose their unemployment benefits at the start of next year, amounting to an income loss of roughly $170 billion annualized.4 Durable goods orders increased by 1.3% month over month in October.5 On a three-month annualized basis, core CPI inflation is running above 2%.6 Of the $750 billion of combined funds in the two major Fed purchasing programs, the Fed used only $13 billion by the end of September, encouraging corporate bond issuance, and creating high yield bond demand.7 We expect a fiscal response by way of a stimulus package in Q1 2021. Canada saw a surge in its COVID-19 cases following its October Thanksgiving, which sends a worrisome signal for the U.S. holidays. As provincial authorities have tightened restrictions, growth is expected to stall next quarter.

News of the high effectiveness of the Pfizer and Moderna vaccines helped push the S&P 500 to a record high and caused longer dated Treasury yields to rise closer to 1%, even as the Fed’s commitment to low interest rates kept short-term interest rates anchored near zero. The S&P 500 declined 2.7% in October, as concerns mounted over rising coronavirus infections, mixed earnings results, and the Presidential and Congressional elections. Smaller cap stocks outperformed, with the S&P Mid Cap 400 and the S&P SmallCap 600 rising 2.2% and 2.6%, respectively. The Canadian S&P/TSX Composite was down 3.1%. European equities slid sharply lower after a resurgence in cases of COVID-19 led to increased restrictions across the continent. The S&P Europe 350 dropped 5.0% on the month. The S&P United Kingdom declined to finish the month with a loss of 5.0%, as Brexit negotiations continued to drag on and the government attempted to fine-tune virus control measures by region. Emerging Markets gained 2.04% as measured by the S&P Emerging BMI. The risk-on mood in markets has further undermined the dollar, which on a trade-weighted basis, has hit an 18-month low.

In November, we maintained the asset allocation that was established in October for all models. While continuing to favor shorter duration fixed income, we shifted exposure from Mortgage-Backed Bonds that have been supported by the Fed asset buying program to Municipal Bonds that will benefit from expected fiscal spending on infrastructure. With interest rates low or negative, we have maintained exposure to gold. Equity exposure across all models reflects our view that markets are looking through the uncertainty of the pandemic and towards the resumption of more normal life once the population is vaccinated.

There are numerous catalysts for market volatility in the fourth quarter with the primary one being the premature withdrawal by governments seeking to repair some of the damage to public finances. 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. November 16, 2020.

Trading Economics. U.K. Government Budget. November 2020.

Trading Economics. U.S. Employment. November 2020.

Trading Economics. U.S. Employment Forecast. November 2020.

Trading Economics. Durable Goods Orders. November 25, 2020.

Trading Economics. U.S. CPI. November 2020.

The Federal Reserve. FOMC notes. November 5, 2020.


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