Kim Parlee recaps the biggest news of the day including the latest COVID-19 developments, followed by a conversation with David Sykes, Head of Public Equities, TD Asset Management, about what needs to happen before markets find the bottom, and how to find companies that can emerge when the crisis subsides.
- Hello, everybody, and welcome to the Money Talk COVID-19 daily bulletin for Wednesday, March 25. I'm Kim Parlee. In a few moments, we're going to be talking with David Sykes. He's the Head of Public Equities at TD Asset Management. But first, to wrap up a bit of news from this morning, Canadian MPs have passed an $82 billion emergency bill after reaching a compromise overnight. The deal will now go through the House of Commons. The prime minister also said that Canadians are now being tested at a rate of 10,000 people per day and government workers are being shifted to aid fund processing.
The US senate has passed a $2 trillion coronavirus relief bill. Senator Minority Leader Chuck Schumer called it the largest rescue package in American history. Facebook said total messaging usage was up 50% in countries hit hard by the virus. In Italy, group video calling grew by more than 1,000% month over month. And use of all Facebook apps was up 70%. Spain has overtaken China with 3,400 coronavirus deaths. And Spain has asked NATO for assistance. And Boeing has plans to restart production of troubled 737 Max planes by May as it seeks $60 billion in US aid.
All right, to get to our guest and to talk a bit about what this all means for the markets and what he is seeing right now, as I promised, David Sykes, Head of Public Equities at TD Asset Management joins us from his home. David, good to see you. I want to start with the stimulus package that we just talked about that has been passed in the States. Unprecedented fiscal action follow-- which is preceded by unprecedented monetary action. Give us your sense on is it enough?
- So great question. Nice to see you. Hope everyone is safe. So for me, the package is vast, it truly is. If think about the $2 trillion number and you compare that to a $20 trillion US economy, it's 10%. I mean, this has never been seen before. And if you combine this with what the Federal Reserve has already done, and you combine this with what central banks have done around the world, this is a lot. There's a lot of stimulus here.
So the question is, does it work? Is it going to work? And the question to that is depends. On one hand, this is a lot. There's a lot of firepower. But I think what we really need to see is the rate of infection decline, not just in US, but across the globe. And until that rate of infection declines, I think you're going to still see very choppy troubled markets. And that's the number we really need to focus. Of course, there's a bear camp and a bull camp here. Some people say that infection rate is going to come down and some people say we're just getting started.
- Yeah, give me a sense, David, for the bull and bear camp. I mean, what is the-- from what you're hearing, what do you say is that the bull camp saying in terms of what the timeline could be in how this plays out?
- Yeah, I think on the bull side, people say, well, look, if we look at the China case, it was about eight to 10 week shut down full stop. It was very painful. GDP collapsed. But we got through this and now we're coming out the other side. So the bulls would say, look, it's an eight, 10, 12 week process, and that the stock market has discounted a lot of that negative news already. We've been down peak to trough 35%. And perhaps we're clawing our way out of this.
On the bear case, I think that's something that we're all afraid of. And, you know, you have seen certain pockets of this really, really take hold. And I think I'm not even sure I want to contemplate the bear case. But I do think what's important is that medical authorities seem to be getting to policymakers. And I think personally, the sooner we can get to the all stop, the sooner we're going to come out of this. I think it's pretty clear what we need to do, which is do what medical professionals are telling us. Let's social distance, let's take this very seriously. And the sooner we do that, it's got to be painful for the economy, but we can look forward to coming out the other side.
- You are Head of Public Equities. Yesterday, we saw an 11% spike up in the North American markets. How do you evaluate valuations in this kind of market? I mean, how do you figure out what looks attractive and what doesn't? Or can you?
- Yeah, it's difficult. I mean, the move yesterday was obviously, welcomed. But I'm not sure if this is a bottom. Bottoming is not an event. There's not going to be one single piece of data that's going to tell us all clear. It's a process and I think it's going to take weeks, if not months. Markets are going to be incredibly volatile. And what we're all trying to figure out is what is the demand profile? What's going to happen to GDP growth? What happens for earnings? So from that standpoint, it's very difficult.
I'd say there are certainly pockets of opportunities, but it really is about making those estimations, and maybe perhaps in some cases, guesstimates about what you think the future holds. And that's not easy to do. And that's why there's so much volatility and the markets have been so wild on the up and on the down.
- Let's take your first-- your bull case or maybe a mid case scenario. Let's assume that things will come back, and I think a lot of people see that. What sectors are you looking right now? I mean, how do you even go through the process of looking at sectors and companies?
- Yes, so I think on the sector front, there's been a lot of damage. I mean, obviously, some sectors have held in better than others. Certainly, you know, financials have not done particularly well in a lower interest rate environment. The energy sector has really been hurt with lots of bad news around oil prices. But I think if you look at things like consumer discretionary sectors, if you look at things like industrials, they've really been well. I mean, you have to assume that consumers don't come back for a long, long, long time and never spend. And so I think that to me is probably a certain area that's overdone.
And so I think there's interesting opportunities in consumer sectors, also in industrials. There's quite a few global companies that, you know, if you assume that we're down and out for the next three, four months, there's some really interesting value. If you assume we're down and out for the next three or four years, then we haven't reached that value point yet.
- Noted. So when you take a look at some of those sectors within that, how do you evaluate companies? I mean, you know, we're always talking about moats and what companies have. So what-- what are the criteria that you're looking at?
- Yeah, for us, the criteria really comes around a quality business. And there's a bunch of different things that go into defining what a quality business is, but I think first and foremost, at this point in an economic cycle, what people often forget about is the balance sheet. Let's focus in not so much on the profit and loss statement-- how much money is this company going to make this year or the next quarter-- but what is its financial snapshot right now today? How much debt does it have?
And if a company, like a person, has a lot of debt, you can get into a lot of trouble. The example I would use-- if I lose my job and I'm not able to pay my monthly bills, and I forget my mortgage, I might not have my house. And if you're a company, and all of sudden, your revenues go dead stop, are you able to pay employees? Are you able to pay your interest costs? Are you able to refinance your debt? And so for us, that balance sheet perspective is number one at a time like this around quality.
The second thing, Kim, as you mentioned, was around that moat. What is it that make this company special? Is it they've got an amazing product that people will continue to purchase? Do they have a digital strategy so people can get those products online? What is it that's going to allow them to continue their business as best they can to get through this and get out the other side? And we think there are still some very attractive businesses in that area.
- This is fluid. My last question for you, for someone who's watching, what you think the biggest mistake an investor can make right now?
- I think the biggest mistake right now is a knee jerk reaction either way. I don't think it's all clear. And I don't think it's going straight down, either. I think what you have to do-- if there's one word, it's about balance. We should always have a little bit of cash. You should always have a little bit allocation your bonds, and you should always have a high quality dividend-paying, dividend-growing equities.
And I wouldn't-- I would caution people not to make all clear or, you know, the doomsday scenario. I think we've got to stick to our plan. Use your cash opportunistically to buy some of these great companies that are on sale. And let's be cautious and prudent. We will get through this, in my opinion, but it's not going to be a one day event, and all of a sudden, someone is going to ring a bell and say, you know, it's all over.
- All right, David, thanks so much for the insight. Be well. Take care of your family. We'll talk to you again soon.
- Thank you. You as well.
- That's David Sykes. He's Head of Public Equities at TD Asset Management. I'm Kim Parlee. Thanks so much for watching. As well to you, keep safe, be well. We'll talk to you again soon.