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Markets are on track for their biggest selloff since the 2008 financial crisis, as fears grow about the coronavirus impact on global economic growth. Rob Vanderhooft, CIO, TD Asset Management gives his perspective on the stock selloff.
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[MUSIC PLAYING]
- Rob, this has been an incredible week. It's really been, I think, one of the biggest sell offs we've seen since the 2008 financial crisis. Take us through what you've seen.
- Yeah, and again, it has been one of the worst sell offs that we've seen. Probably the third or fourth largest correction or draw downs since 1970, which includes the global financial crisis, which includes the crash of '87 obviously as well. But it is important to keep things in perspective.
- And what do you mean by perspective?
- Well, if you look at it the economic impact and the damage related to the global financial crisis, the expectations at the time, and the reality was for a much more significant impact on economic growth, global economic growth, and there was a real concern at the time that we could lose the financial system.
- And these were systemic problems.
- Systemic problems, and again, very different position than we're in now. We are seeing almost a panic in the market, and there are real human impact costs on the Corona virus, there will be economic impacts, but it's not like we're going to lose the financial system as there was a concern in a wait. And again, need to keep those things in perspective, and while we've seen a correction, we do see some opportunities going forward.
- I want to talk about the opportunities, but I know you and I were chatting beforehand too about just, again, keeping it in perspective. When you take a look at some of the indices and the sell offs versus where we were, let's say you know at the beginning of the year, but from a long term perspective, it sounds a lot less bad.
- Yeah, as damaging as things have been, if you look at last year, TSX was up 23% and year to year to today, it's down 6.6%. Again, that may change in the next couple of minutes. The S&P 500 up 25% last year. Year to date, we're down about 11%.
So while there's been damage done on a year to date basis, again, keep it in context relative to what we've seen in terms of return. Keeping that well diversified, long term portfolio mix makes a lot of sense, and certainly, this is one of the reasons for that.
- I know that you at TS management has something called the wealth asset allocation committee, where you're looking strategically at your outlook on a number of asset classes over the next little while. Has anything changed with what's happened right now?
- Yeah, I mean you look at how we came into this with a very modest risk position on, with respect to a bit of an overweight in US equities, but again, you always need to look from here forward, the next 18 to 24 months, and relative to where we see equities at the moment, our expectation is 18 to 24 months from now you don't have a positive outcome, with respect relative to now. And so we try to maintain that long-term perspective, but again, have had very little risk on coming into this.
- One thing that's going to happen, we know, is that we're going to still get a lot of headlines coming at us the next little while from the public health standpoint-- the World Health Organization, the CDC. Do you expect to see things pretty jittery as we continue to get more information coming in?
- Yeah, and again, the markets are really reacting to the headline news, and so you try to keep that into context. We do expect that the government responses in terms of central bank action will continue to be supportive of the markets. We have seen significant government support in China with rate cuts and et cetera, and are you likely to see rate cuts in the US? Yeah, the Fed is very likely to cut. There's probably an 80-- well, there's an 80% probability that the Fed cuts several times more, again, to be supportive of the economy.
- Let me ask the final question. I think one of the hardest things for investors when they're watching this happen right now is what should I do? And I know you can't give specific advice to people who are watching, but I mean, from that long-term perspective, how do you-- what high level things do people think about when they're watching this?
- And again, it's important to keep that long-term asset mix and to be in balanced portfolios. What we do know is there's a lot of cash that has been sitting on the sidelines, in part because of the pullback in 2018, and that is continue to sit on the sidelines. We've seen a significant pullback here. What I can tell you is in terms of some of the action we've been taking, if you look at some of the equity portfolios, we've been selectively buying yesterday and we'll probably continue to selectively buy where there are opportunities that we think the market has overreacted.
I think we'll begin to see that develop as people step in and selectively buy, but to rush to 100% cash--
- At the wrong time.
- --very difficult to do. The challenge is always, when is the bottom and can you get back in? And so we certainly aren't advocates of market timing, but rather taking those long-term perspectives.
- Rob, thank you very much.
- Thank you.
[MUSIC PLAYING]
- Rob, this has been an incredible week. It's really been, I think, one of the biggest sell offs we've seen since the 2008 financial crisis. Take us through what you've seen.
- Yeah, and again, it has been one of the worst sell offs that we've seen. Probably the third or fourth largest correction or draw downs since 1970, which includes the global financial crisis, which includes the crash of '87 obviously as well. But it is important to keep things in perspective.
- And what do you mean by perspective?
- Well, if you look at it the economic impact and the damage related to the global financial crisis, the expectations at the time, and the reality was for a much more significant impact on economic growth, global economic growth, and there was a real concern at the time that we could lose the financial system.
- And these were systemic problems.
- Systemic problems, and again, very different position than we're in now. We are seeing almost a panic in the market, and there are real human impact costs on the Corona virus, there will be economic impacts, but it's not like we're going to lose the financial system as there was a concern in a wait. And again, need to keep those things in perspective, and while we've seen a correction, we do see some opportunities going forward.
- I want to talk about the opportunities, but I know you and I were chatting beforehand too about just, again, keeping it in perspective. When you take a look at some of the indices and the sell offs versus where we were, let's say you know at the beginning of the year, but from a long term perspective, it sounds a lot less bad.
- Yeah, as damaging as things have been, if you look at last year, TSX was up 23% and year to year to today, it's down 6.6%. Again, that may change in the next couple of minutes. The S&P 500 up 25% last year. Year to date, we're down about 11%.
So while there's been damage done on a year to date basis, again, keep it in context relative to what we've seen in terms of return. Keeping that well diversified, long term portfolio mix makes a lot of sense, and certainly, this is one of the reasons for that.
- I know that you at TS management has something called the wealth asset allocation committee, where you're looking strategically at your outlook on a number of asset classes over the next little while. Has anything changed with what's happened right now?
- Yeah, I mean you look at how we came into this with a very modest risk position on, with respect to a bit of an overweight in US equities, but again, you always need to look from here forward, the next 18 to 24 months, and relative to where we see equities at the moment, our expectation is 18 to 24 months from now you don't have a positive outcome, with respect relative to now. And so we try to maintain that long-term perspective, but again, have had very little risk on coming into this.
- One thing that's going to happen, we know, is that we're going to still get a lot of headlines coming at us the next little while from the public health standpoint-- the World Health Organization, the CDC. Do you expect to see things pretty jittery as we continue to get more information coming in?
- Yeah, and again, the markets are really reacting to the headline news, and so you try to keep that into context. We do expect that the government responses in terms of central bank action will continue to be supportive of the markets. We have seen significant government support in China with rate cuts and et cetera, and are you likely to see rate cuts in the US? Yeah, the Fed is very likely to cut. There's probably an 80-- well, there's an 80% probability that the Fed cuts several times more, again, to be supportive of the economy.
- Let me ask the final question. I think one of the hardest things for investors when they're watching this happen right now is what should I do? And I know you can't give specific advice to people who are watching, but I mean, from that long-term perspective, how do you-- what high level things do people think about when they're watching this?
- And again, it's important to keep that long-term asset mix and to be in balanced portfolios. What we do know is there's a lot of cash that has been sitting on the sidelines, in part because of the pullback in 2018, and that is continue to sit on the sidelines. We've seen a significant pullback here. What I can tell you is in terms of some of the action we've been taking, if you look at some of the equity portfolios, we've been selectively buying yesterday and we'll probably continue to selectively buy where there are opportunities that we think the market has overreacted.
I think we'll begin to see that develop as people step in and selectively buy, but to rush to 100% cash--
- At the wrong time.
- --very difficult to do. The challenge is always, when is the bottom and can you get back in? And so we certainly aren't advocates of market timing, but rather taking those long-term perspectives.
- Rob, thank you very much.
- Thank you.
[MUSIC PLAYING]
