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Hamza Bahadurali
Farid Ameri

Tel: 416-359-8332
Tel: 416-919-1470

100 King St W
39th Floor
Toronto, ON
M5X 1H3

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Quarterly Update

January 13, 2020

So 2020 will end up being a year out of the box – a box we will not want to see repeated to say the very least.  Despite COVID and its lasting impacts on our lives, both fixed income and equity markets were able to provide decent returns and in some cases above historical trends in the case of bonds and technology stocks.  The year also led to many other non-financial trends peaking as we all adjusted to working remotely and staying home more.  In demand items included dogs, fitness equipment, pools and single-family homes in the “burbs”.  Let’s hope that in the next two to three years these do not become “unwanted” items, especially dogs!
While it feels as though the equity markets had a great year it is important to appreciate the full year returns not just April onwards and that the rally in stocks was relatively narrow.  Averages can conceal a great deal. For example, over half the gain in the S&P 500 market value this year has been due to the Information Technology (IT) sector. Many non-IT stocks have languished. This is a big reason the US outperformed this year as the main equity index (S&P 500) has the greatest market dominance of IT stocks of any global market and one of lowest exposures to cyclicals, primarily Energy and Materials.  Do we have a bubble?  Overall, we would say no, but there are certain pockets where valuation have gotten stretched and momentum has taken over.  We need to look no further than Bitcoin and any stock that has to do with the Electric Vehicle market. 
The fourth quarter put an exclamation point the year. Stock investors looked through growing infection and hospitalization rates to what the world would look like once vaccines were distributed.  The main action for the quarter began in November with a rally after investors' worst electoral fears did not materialize in the US, and positive vaccine data was released.  I won’t go into the election as there is nothing I can really add to the words already splashed across the airwaves. And, of course, I try to stay non-partisan, or so I would like you to believe.
Where Do We Go From Here?
Despite major indices hitting all time highs, we continue to believe that equities offer superior relative value to bonds and therefore retain our overweight’s stance on stocks in our Tactical Asset Allocation recommendation.  Working in favour of equities is;
  • The tremendous amount of monetary and fiscal stimulus – in fact Canada’s fiscal support is the highest of any G7 country
  • Low interest rates with Central Banks keeping rates lower for longer
  • COVID vaccine rollouts and the world starting to “normalize”
  • This in turn should lead to a recovery in cyclical stocks that did not participate in the rally during 2020 - Energy, Materials, Financials
  • Let’s not forget “The “Invisible Hand” - The unobservable market force that has helped increase demand for equities and decrease demand for bonds as investors seek higher yields with interest rates at historic lows.
Strategist targets for 2021 for the most part range from 4,100-4,300 for the S&P 500 and 20,000-22,000 for the S&P/TSX.  This assumes an earning growth rate of 7% in Canada and the U.S.  This is quite achievable given what we think is favouring equities mentioned above. 


Being selective will be increasingly important in 2021.  There are pockets of overvaluation particularly among “sexy” growth stocks. On the other side of the ledger, great steady businesses in the Health Care, Consumer Staples, Industrial, Utilities, REITs and even in the Energy space (e.g. pipelines) have considerable upside given our view that historically low interest rates will persist for at least the next year or more.
As we put 2020 in the rear-view mirror, we continue to believe we will see economic expansion.  That said the risks are elevated which is generally the case early in an economic expansion and those that are willing and able to ride through the volatility are ultimately rewarded.