Show Transcript
Equity markets sell off following a big reversal in major tech stocks last week. Anthony Okolie talks with Michael Craig, Head of Asset Allocation, TD Asset Management about whether this is an overdue pullback, or could signal the end of the rally.
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[CHIMES]
- Michael, the market is now down for a third day in a row. Where are we seeing the sell-off? Is it more broad-based, or is it just a few big leaders?
- So the market has sold off quite violently, and it has been led by this year's winners. Large cap tech has certainly fared the worst. But I would say that there is really no place to hide right now. Canadian markets, European markets, Asian markets are also following suit. So broad-based sell-off, but the most acute pain would be in the US growth technology space, if you will.
- And just recently, we saw markets were trading at record highs. Is this pullback some froth just coming off the markets?
- I think there's a few things that we need be mindful of. One, US growth had rocketed off the bottom back in May, and that's likely to ebb out a bit. So I think this kind of really, really aggressive growth rebound is probably in its final innings, if not final inning.
We had a delay in Congress in extending the fiscal benefits to those who've been affected by COVID-19. So that's going to hit US consumption very soon. We've got, of course, the US election which really is turning out to be one of the most divisive election campaigns of a generation, being somewhat unclear about what we're going to get on election day. If it is a close election, my sense is you won't see the loser admit defeat right off the bat. So that's leading to a lot of volatility.
And then the final thing-- it's the seasonality of it. September tends to be a more challenging month for markets. Once again, we're seeing that. So had a huge run off the lows of March-- this is probably a long overdue correction, but there are some fundamental drivers that I think you're going to see the markets be quite volatile in the next couple of months.
- And you mentioned the stalemate in Congress. Does the market need a stimulus package to perform?
- Well, it certainly would be helpful, but I don't think you're going to get it. And so again, one of the catalysts for stronger growth is certainly turning over. We have seen savings rates really ratcheted higher. I think with a lot of these stimulus checks, I think a lot of this money is actually on its way into the market. And we can e a thought on whether that's right or wrong afterwards. But for the more kind of here and now, it is going to lead to a bit of less demand for financial assets.
And so I don't think coming into this close to the election, you're going to see either side budge here. So my sense is we're not going to get any type of deal that's going to be supportive for markets in the short term.
- You also talk about seasonality. What are some of the other things that you're watching right now? I mean, we're seeing the volatility index inch up as well. What are some things that you're focused on going forward?
- Well, we had raised some cash and taken a bit of profit in August-- latter half of August. You never do as much as you want once you have a real bought of volatility hit, but our game plan is that we are quite bullish on stocks on a 12 to 18-month horizon, and that we are looking at this period now and looking for opportunities in this period now to move to a fairly significant position in equities.
At some point, certainly have levels circled, and so that's our game plan is we have a bit of short term defense on, but looking to go to long term offense as we get more and more volatility through the fall.
- Michael, I want to touch briefly on commodities, specifically oil, which is down quite a bit today-- I think at one point, it was down 8%. Is that signaling more challenges in the global growth story?
- Well, again, oil has come a long way. Of course, in May, we saw negative oil prices for a day. And we were back to the mid-40s. I think, again, this is some short term exhaustion, certainly some fears about growth having rebounded, stalling out a bit.
And so I never look at too much at one day to try to draw a trend, but the usual catalysts are there to see oil come off. This volatility we're seeing is certainly not unprecedented relative to the last six months. And so I'm not terribly concerned about it. But it is another indicator that the market is telling you that growth is going to stall out a bit here going into the fall.
- And finally, what's your message to investors who might be concerned about the sell-off today?
- Well, I would say that for many, it's almost welcome. I don't really fear sell-offs as much as I fear bubbles. And the market was looking a bit frothy. And so for us, it's necessary, it's healthy. The reasons are things that will get worked through the system.
And so I would embrace this volatility. I would look for those who perhaps aren't at the point of where they want the right position on, use this as an opportunity to perhaps pick up some stock in companies they think have good outlooks. That's the way we're looking at it.
And in many ways, this is part of life. You got to roll with it. And I think it's a well overdue and healthy correction from what has been a pretty spectacular market. Remember, from the low, the NASDAQ was up 80%. And so at some point, this was inevitable. And so I think in many ways, it's quite healthy going forward.
- Michael, thank you very much for your insights.
- Pleasure to be here, Anthony.
[THEME MUSIC]
- Michael, the market is now down for a third day in a row. Where are we seeing the sell-off? Is it more broad-based, or is it just a few big leaders?
- So the market has sold off quite violently, and it has been led by this year's winners. Large cap tech has certainly fared the worst. But I would say that there is really no place to hide right now. Canadian markets, European markets, Asian markets are also following suit. So broad-based sell-off, but the most acute pain would be in the US growth technology space, if you will.
- And just recently, we saw markets were trading at record highs. Is this pullback some froth just coming off the markets?
- I think there's a few things that we need be mindful of. One, US growth had rocketed off the bottom back in May, and that's likely to ebb out a bit. So I think this kind of really, really aggressive growth rebound is probably in its final innings, if not final inning.
We had a delay in Congress in extending the fiscal benefits to those who've been affected by COVID-19. So that's going to hit US consumption very soon. We've got, of course, the US election which really is turning out to be one of the most divisive election campaigns of a generation, being somewhat unclear about what we're going to get on election day. If it is a close election, my sense is you won't see the loser admit defeat right off the bat. So that's leading to a lot of volatility.
And then the final thing-- it's the seasonality of it. September tends to be a more challenging month for markets. Once again, we're seeing that. So had a huge run off the lows of March-- this is probably a long overdue correction, but there are some fundamental drivers that I think you're going to see the markets be quite volatile in the next couple of months.
- And you mentioned the stalemate in Congress. Does the market need a stimulus package to perform?
- Well, it certainly would be helpful, but I don't think you're going to get it. And so again, one of the catalysts for stronger growth is certainly turning over. We have seen savings rates really ratcheted higher. I think with a lot of these stimulus checks, I think a lot of this money is actually on its way into the market. And we can e a thought on whether that's right or wrong afterwards. But for the more kind of here and now, it is going to lead to a bit of less demand for financial assets.
And so I don't think coming into this close to the election, you're going to see either side budge here. So my sense is we're not going to get any type of deal that's going to be supportive for markets in the short term.
- You also talk about seasonality. What are some of the other things that you're watching right now? I mean, we're seeing the volatility index inch up as well. What are some things that you're focused on going forward?
- Well, we had raised some cash and taken a bit of profit in August-- latter half of August. You never do as much as you want once you have a real bought of volatility hit, but our game plan is that we are quite bullish on stocks on a 12 to 18-month horizon, and that we are looking at this period now and looking for opportunities in this period now to move to a fairly significant position in equities.
At some point, certainly have levels circled, and so that's our game plan is we have a bit of short term defense on, but looking to go to long term offense as we get more and more volatility through the fall.
- Michael, I want to touch briefly on commodities, specifically oil, which is down quite a bit today-- I think at one point, it was down 8%. Is that signaling more challenges in the global growth story?
- Well, again, oil has come a long way. Of course, in May, we saw negative oil prices for a day. And we were back to the mid-40s. I think, again, this is some short term exhaustion, certainly some fears about growth having rebounded, stalling out a bit.
And so I never look at too much at one day to try to draw a trend, but the usual catalysts are there to see oil come off. This volatility we're seeing is certainly not unprecedented relative to the last six months. And so I'm not terribly concerned about it. But it is another indicator that the market is telling you that growth is going to stall out a bit here going into the fall.
- And finally, what's your message to investors who might be concerned about the sell-off today?
- Well, I would say that for many, it's almost welcome. I don't really fear sell-offs as much as I fear bubbles. And the market was looking a bit frothy. And so for us, it's necessary, it's healthy. The reasons are things that will get worked through the system.
And so I would embrace this volatility. I would look for those who perhaps aren't at the point of where they want the right position on, use this as an opportunity to perhaps pick up some stock in companies they think have good outlooks. That's the way we're looking at it.
And in many ways, this is part of life. You got to roll with it. And I think it's a well overdue and healthy correction from what has been a pretty spectacular market. Remember, from the low, the NASDAQ was up 80%. And so at some point, this was inevitable. And so I think in many ways, it's quite healthy going forward.
- Michael, thank you very much for your insights.
- Pleasure to be here, Anthony.
[THEME MUSIC]
