Show Transcript
Anthony Okolie recaps the biggest news of the day including the latest COVID-19 developments, followed by a conversation with Damian Fernandes, Portfolio Manager, TD Asset Management, about the potential recovery in equities and the opportunity for investors searching for yield.
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[MUSIC PLAYING]
- Hello, and welcome to the Money Talk COVID-19 Daily Bulletin. I'm Anthony Okolie for Thursday, March 26. In a few minutes, we'll talk with Damian Fernandes. He's a Portfolio Manager of TD Asset Management on what he's watching right now in the equity markets. But before we get there, let's just round up what's happening in the news today.
North American markets so far are surging as investors shrug off the weekly jobless numbers out of the US. A record 3.28 million Americans filed for the first week of unemployment benefits last week, the highest number in US history. Despite the bleak jobless claims numbers, companies like Amazon, Walmart, and others, are hiring to fill over 400,000 job openings amid the coronavirus demand.
And the US Senate approved a $2 trillion economic aid package late Wednesday. The bill now moves to the House vote where it's likely to pass. Fed chair Jay Powell said in an interview today, "We may well be in a recession." However, he also said that the Fed still has plenty of tools left to support the US economy.
And finally, S&P downgraded Ford's debt to junk status. The move comes after another rating agency, Moody's, dropped its rating on Ford debt earlier this week. And for more on what these news items could mean for markets and investors, I'm joined by Damian Fernandes, Portfolio Manager of TD Asset Management. Damian, you saw the US weekly jobless numbers. What's your reaction?
- Anthony, you said a few things in the opening comments that I thought were really noteworthy, right? And you can almost weave them into what the reaction we're seeing. You said 3.3 million jobless claims. Look, that's a massive number. That's gargantuan and unprecedented. And yet, if you had no context around that number, you think markets should be selling off, should be under a lot of pressure.
But you also said in the opening comments-- and look, it's early in the day and we don't know if this will hold. But markets are up and markets are rallying. Why is that?
I think those two almost disparate concepts can be tied to the last thing you said, which was $2 trillion of stimulus that looks to be finalized. That is, put a number in context, that's 10% of US GDP on an annual basis. That's a big number. And I think that's the main news event. Yes, it seems like there is a big jobless number. But what also should be the news event is that policymakers are responding to the economic fallout of this COVID-19 virus.
- And, Damian, I understand you recently cited a famous quote. "It is darkest before the dawn." Have we seen the darkest hour before the dawn yet?
- I'm not sure if we're right where we can see the light completely, but I do think what we have done, right, and what my initial comments were is that policymakers would be looking at the Federal Reserve, the Bank of Canada, Global Central Banks, what the US government is doing. They are unanimous in providing the response to put a floor under economic growth.
Everyone knows the virus because of social distancing measures is going to lead to a big pullback in economic activity. That might last this quarter. That might go into the next quarter. But what they're trying to do is support growth through these measures. This is very different from previous crises because the response has been immediate. It's been immediate. It's been unanimous. And it's been pretty large.
So I do think while there's a lot of fear out there and the uncertainty, right, fear of uncertainty, how long this virus continues, that's present. We don't know what that's going to mean for economic growth, but at least we can take some solace that our policyholders aren't asleep at the wheel and they're providing measures to try and get us to the other side till we see the light.
ANTHONY OKOLIE: And you mentioned some of these policy measures-- the Fed, as well as the fiscal stimulus package-- and you believe that equities will eventually rebound. And you brought a chart to show us why. Walk us through this chart. What does it show?
DAMIAN FERNANDES: Sure, Anthony. I like charts because I find that a picture can say a thousand words. And that chart, what you see in front of you, is just pretty simple in construction and pretty simple in what it's trying to convey. It is the dividend yield of the S&P 500, right, the best and brightest US companies, less the 10 year treasury. And it has some history behind it.
And it shows where we are currently versus prior periods when it got this level. Look, this chart is actually even a little more attractive because it was updated at the end of Feb. And since then, markets have sold off and rates have actually gone even lower. But I guess my point about this chart is that in all those previous points where we are where we are today, the financial crisis, the European debt crisis, and when Greece went bankrupt.
When the Chinese had its slowdown and you had a collapse in commodity prices in 2015, 2016. All of those at that point in time were scary points. We had uncertainty about economic growth. We didn't know where earnings were headed, and it was right to be fearful. Yet, those-- all those prior points in hindsight were actually quite attractive points to be invested, or to at least not to panic.
But the best advice, I think, that holds both in life and as we're trying to manage this crisis is don't panic. And I think because a lot of where we are right now looking at variables like dividend yields and where rates are, we're at levels where historically a lot of panic is being priced into the marketplace already.
ANTHONY OKOLIE: But I want to pick up on what you said about dividend yields. You also say that equities are a good place for investors who are looking for yield. Why is that?
- It's so much because the alternative of finding yield is slowly going away, right? Monetary accommodation, quantitative easing, is just speak for buying bonds and lowering their yields. So with the global central bankers, reaccelerating the monetary condition and buying more bonds to help financial conditions, they are driving the yields on those fixed income instruments lower. Whereas, equities right now, because prices have corrected, are actually providing attractive yields, particularly high quality equities. So for investors who are looking to satisfy an income component, you can actually look to enter the market right now, and high quality companies that provide attractive yields.
- But of course, if the coronavirus outbreak continues to spread and it stays longer than expected, and of course maybe comes back later next year, all bets are off, right?
- Completely. Look, we don't know-- what we do know is that policy holders-- the policy makers, sorry, both monetary accommodation being provided and fiscal stimulus is trying to stop this escalating. We know that economic growth's going to be really bad. This is almost like a Band-Aid to make sure it doesn't deteriorate, doesn't get worse, try and cull the bleeding.
But if this continues into Q3, into Q4, or reoccurs next year, then any questions about us returning back to growth those really become risk factors again. When do we ever get back to trend level growth? And then the sad thing is we don't know. It's just so early that we don't know both the duration of how long this virus will be with us, and we don't know the eventual magnitude of how much economic growth it's going to subtract. But at least we can take some comfort that this time around, policymakers aren't falling asleep at the wheel and they have put in measures to try and provide some insulation against the worst outcomes.
ANTHONY OKOLIE: Damian, as always, thank you very much for your time and your insights.
- Thank you, Anthony.
- That was Damian Fernandes, Portfolio Manager, TD Asset Management. My name is Anthony Okolie. Thank you very much for joining us. We hope to see you next time.
[MUSIC PLAYING]
- Hello, and welcome to the Money Talk COVID-19 Daily Bulletin. I'm Anthony Okolie for Thursday, March 26. In a few minutes, we'll talk with Damian Fernandes. He's a Portfolio Manager of TD Asset Management on what he's watching right now in the equity markets. But before we get there, let's just round up what's happening in the news today.
North American markets so far are surging as investors shrug off the weekly jobless numbers out of the US. A record 3.28 million Americans filed for the first week of unemployment benefits last week, the highest number in US history. Despite the bleak jobless claims numbers, companies like Amazon, Walmart, and others, are hiring to fill over 400,000 job openings amid the coronavirus demand.
And the US Senate approved a $2 trillion economic aid package late Wednesday. The bill now moves to the House vote where it's likely to pass. Fed chair Jay Powell said in an interview today, "We may well be in a recession." However, he also said that the Fed still has plenty of tools left to support the US economy.
And finally, S&P downgraded Ford's debt to junk status. The move comes after another rating agency, Moody's, dropped its rating on Ford debt earlier this week. And for more on what these news items could mean for markets and investors, I'm joined by Damian Fernandes, Portfolio Manager of TD Asset Management. Damian, you saw the US weekly jobless numbers. What's your reaction?
- Anthony, you said a few things in the opening comments that I thought were really noteworthy, right? And you can almost weave them into what the reaction we're seeing. You said 3.3 million jobless claims. Look, that's a massive number. That's gargantuan and unprecedented. And yet, if you had no context around that number, you think markets should be selling off, should be under a lot of pressure.
But you also said in the opening comments-- and look, it's early in the day and we don't know if this will hold. But markets are up and markets are rallying. Why is that?
I think those two almost disparate concepts can be tied to the last thing you said, which was $2 trillion of stimulus that looks to be finalized. That is, put a number in context, that's 10% of US GDP on an annual basis. That's a big number. And I think that's the main news event. Yes, it seems like there is a big jobless number. But what also should be the news event is that policymakers are responding to the economic fallout of this COVID-19 virus.
- And, Damian, I understand you recently cited a famous quote. "It is darkest before the dawn." Have we seen the darkest hour before the dawn yet?
- I'm not sure if we're right where we can see the light completely, but I do think what we have done, right, and what my initial comments were is that policymakers would be looking at the Federal Reserve, the Bank of Canada, Global Central Banks, what the US government is doing. They are unanimous in providing the response to put a floor under economic growth.
Everyone knows the virus because of social distancing measures is going to lead to a big pullback in economic activity. That might last this quarter. That might go into the next quarter. But what they're trying to do is support growth through these measures. This is very different from previous crises because the response has been immediate. It's been immediate. It's been unanimous. And it's been pretty large.
So I do think while there's a lot of fear out there and the uncertainty, right, fear of uncertainty, how long this virus continues, that's present. We don't know what that's going to mean for economic growth, but at least we can take some solace that our policyholders aren't asleep at the wheel and they're providing measures to try and get us to the other side till we see the light.
ANTHONY OKOLIE: And you mentioned some of these policy measures-- the Fed, as well as the fiscal stimulus package-- and you believe that equities will eventually rebound. And you brought a chart to show us why. Walk us through this chart. What does it show?
DAMIAN FERNANDES: Sure, Anthony. I like charts because I find that a picture can say a thousand words. And that chart, what you see in front of you, is just pretty simple in construction and pretty simple in what it's trying to convey. It is the dividend yield of the S&P 500, right, the best and brightest US companies, less the 10 year treasury. And it has some history behind it.
And it shows where we are currently versus prior periods when it got this level. Look, this chart is actually even a little more attractive because it was updated at the end of Feb. And since then, markets have sold off and rates have actually gone even lower. But I guess my point about this chart is that in all those previous points where we are where we are today, the financial crisis, the European debt crisis, and when Greece went bankrupt.
When the Chinese had its slowdown and you had a collapse in commodity prices in 2015, 2016. All of those at that point in time were scary points. We had uncertainty about economic growth. We didn't know where earnings were headed, and it was right to be fearful. Yet, those-- all those prior points in hindsight were actually quite attractive points to be invested, or to at least not to panic.
But the best advice, I think, that holds both in life and as we're trying to manage this crisis is don't panic. And I think because a lot of where we are right now looking at variables like dividend yields and where rates are, we're at levels where historically a lot of panic is being priced into the marketplace already.
ANTHONY OKOLIE: But I want to pick up on what you said about dividend yields. You also say that equities are a good place for investors who are looking for yield. Why is that?
- It's so much because the alternative of finding yield is slowly going away, right? Monetary accommodation, quantitative easing, is just speak for buying bonds and lowering their yields. So with the global central bankers, reaccelerating the monetary condition and buying more bonds to help financial conditions, they are driving the yields on those fixed income instruments lower. Whereas, equities right now, because prices have corrected, are actually providing attractive yields, particularly high quality equities. So for investors who are looking to satisfy an income component, you can actually look to enter the market right now, and high quality companies that provide attractive yields.
- But of course, if the coronavirus outbreak continues to spread and it stays longer than expected, and of course maybe comes back later next year, all bets are off, right?
- Completely. Look, we don't know-- what we do know is that policy holders-- the policy makers, sorry, both monetary accommodation being provided and fiscal stimulus is trying to stop this escalating. We know that economic growth's going to be really bad. This is almost like a Band-Aid to make sure it doesn't deteriorate, doesn't get worse, try and cull the bleeding.
But if this continues into Q3, into Q4, or reoccurs next year, then any questions about us returning back to growth those really become risk factors again. When do we ever get back to trend level growth? And then the sad thing is we don't know. It's just so early that we don't know both the duration of how long this virus will be with us, and we don't know the eventual magnitude of how much economic growth it's going to subtract. But at least we can take some comfort that this time around, policymakers aren't falling asleep at the wheel and they have put in measures to try and provide some insulation against the worst outcomes.
ANTHONY OKOLIE: Damian, as always, thank you very much for your time and your insights.
- Thank you, Anthony.
- That was Damian Fernandes, Portfolio Manager, TD Asset Management. My name is Anthony Okolie. Thank you very much for joining us. We hope to see you next time.
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