Invesco Canada blog

Insights, commentary and investing expertise

History provides insight on how long a market downturn may last

The Greek historian and general Thucydides famously said, “History is philosophy teaching by examples.” That brilliant observation came to mind when we were thinking about how history can be a valuable guide for navigating volatile market environments.

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Video: Perspective on global equity sell-off

Given the high level of volatility and the recent market selloffs, we thought it would be helpful to provide our perspective on what we have seen in Global Equity markets in February, March, impact on portfolio and what our outlook is.

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Video: Finding opportunities in investment grade bonds

The spread of COVID-19 has created unprecedented market turmoil. While the equity space garners the most headline attention, it’s been a very volatile time for the fixed income markets, particularly within the investment-grade space. In fact, over the last few weeks, we’ve witnessed six out of the 10 largest one-day moves in history.

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Six things for investors to watch in April

In the early stages of the COVID-19 pandemic, we talked about the need for an effective, global, three-pronged approach in order to achieve a “best-case scenario” outcome: 1) an appropriate health policy response to “flatten the curve” and control the spread of the virus; 2) an adequate monetary policy response to support financial markets and the economy; and 3) an adequate fiscal policy response to help soften the economic blow to households and businesses. We saw effective approaches, in different forms, in both China and South Korea. Now we are looking to other policymakers to provide effective strategies as the novel coronavirus spreads.

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Where do portfolio managers see opportunities in today’s environment?

The three-pronged fight against COVID-19 and its economic impact continues. Central banks are providing monetary policy support to keep banks and markets functioning, national governments are providing fiscal policy support to consumers and businesses, and governments at all levels are taking public health policy steps to contain the spread of the virus. (Not to mention the tireless dedication of the health care workers on the front lines and the scientists searching for treatments and vaccines.)

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Positioning for the rebound?

Before I answer the following specific questions, let me first say that these are the sorts of times we live for as fund managers. Volatility provides opportunity, uncertainty leads to mis-pricing. Work we have done over several years can now be brought into use: we have already run the ruler over many businesses which used to trade at fair values but which now trade at bizarrely cheap valuations.
 
Decisions we make in these weeks of high-intensity can be crucial for performance both in absolute and relative terms. And Asian & Emerging Markets Equity of previous situations of similar intensity (1998, 2001, 2003, 2008/09, 2015/16) helps inform these crucial decisions. While I am deeply unhappy with the performance of our investment strategy this year, I believe there are now many buying opportunities out there.

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Where do stocks and bonds go from here?

In last week’s blog, members of Invesco’s Global Market Strategy (GMS) team in Hong Kong, Italy, London, Tokyo and New York shared their on-the-ground insights of the fight against coronavirus from a health care, monetary, and fiscal perspective. Today, we take a deeper dive into the potential implications of the pandemic on U.S. stocks and bonds, as well as the GMS team’s view of asset allocation considerations.

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A new dashboard to consider for signs of a new market cycle

Chuck Noland, Tom Hanks’ character in the movie Cast Away, may have perfectly captured the mood we need to bring to these challenging times, when he said, “I gotta keep breathing. Because tomorrow the sun will rise. Who knows what the tide could bring?”

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The coronavirus “sudden stop” needs credit support

The U.S. economy is currently experiencing a “sudden stop” in growth, as efforts to combat the spread of the coronavirus increase. Social distancing will likely have a direct impact on workers and small businesses across the economy. Invesco Fixed Income’s expectations currently are for the U.S. and European economies to contract sharply in the second quarter this year, and this estimate is subject to further revision down if the virus continues its aggressive spread. This very sharp contraction is pressuring all players in the U.S. economy and creating a funding need for corporations, small businesses, and households. It is vitally important that funding needs be met to ensure that the exogenous economic shock the U.S. economy is experiencing does not migrate into a financial crisis, which would likely further pressure economic growth.

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Coronavirus impact and response: A global view

Every morning, my day begins by discussing the latest developments in the coronavirus fight with my team of strategists on-the-ground in Hong Kong, Italy, London, Tokyo, New York and elsewhere. Today, my weekly blog features several members of Invesco’s Global Market Strategy Office, who answer the most pressing questions they’ve been hearing from investors who are concerned about COVID-19 and its impact on the global economy.

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Rocky Balboa offers insights on whether investors should consider buying during the coronavirus outbreak

Rocky Balboa said, “You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That’s how winning is done.”

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Chaos can create opportunities

Heading into 2020, the global economy was showing signs of stabilizing and risk assets were benefiting from the cyclical rebound in activity.
 
In recent months, however, the coronavirus has delivered a significant external shock to Chinese and global economic activity at a vulnerable stage of the business cycle.
 
Meanwhile, markets are reacting to the contagion and associated loss of output with a dramatic repricing of risk across a wide array of assets.
 
The S&P 500 Index has fallen almost 30% from its all-time high in February,1 culminating in the highest percentage increase in equity volatility of the cycle and in the history of the Chicago Board of Options Exchange (CBOE) Volatility Index (VIX).

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Assessing the globe’s three-pronged policy response to coronavirus

The coronavirus pandemic is spreading in Europe, the U.K., Canada, and the U.S. – and economic activity is grinding to a halt in some sectors as discretionary spending and activity have been sharply reduced in favour of basic needs. Real-time indicators of demand such as restaurant patronage, traffic, and cellphone mobility data are all down dramatically on a year-over-year basis across several major regional and local economies.
 
The market response has been equally sharp. Stocks rose and fell dramatically last week, especially on Thursday when the Dow experienced its largest drop since 1987 and the STOXX® Europe 600 Index experienced its largest drop ever. The bond market experienced dramatic volatility as well, with the 10-year U.S. Treasury yield falling to as low as 0.4% last week.1 Markets appear to be experiencing a lack of confidence in the policy responses in Europe and the U.S., and that seems to be continuing into this week.
 
One of the questions we have been receiving lately is: What is the appropriate policy response? There’s a lot embedded in that question. In the past, we have written about the importance of a three-pronged policy response to coronavirus: 1) public health policy to contain the virus, 2) monetary measures to ensure financial liquidity and functionality, and 3) fiscal support to contain the real economic damage. Combating the crisis from these three angles remains critical today — here’s how we assess progress in these areas across the globe.

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What could short-term volatility mean for long-term investors?


March 14, 2020
Subject | ETFs | Macro views

Markets are continuing to be highly volatile – and the past two weeks have seen historic gains and losses. While I prefer to evaluate performance over longer periods, it’s understandable that investors are especially interested in the market’s daily fluctuations. Here’s what I’ll be watching in the coming week and months.

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What to make of stocks entering bear-market territory


March 12, 2020
Subject | Coronavirus impact | Macro views

Investors with a 50-year investment horizon will live through, if history is any guide, 14 bear markets over the course of their investing lives.1 That’s a bear market once every 3.57 years.2 History would also suggest that during those bear markets, investors should expect their equity portfolio to lose, on average, 32% (median 28.8%).3 It’s almost enough to make investors wonder why they put money in equities at all. Yet, stocks, as represented by the S&P 500 Index, returned, on average, 10.5% per year over the past 50 years.4 That’s a doubling of their investments, on average, every 6.9 years, notwithstanding all the bear markets.5

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Could the surge in market volatility signal the end of the current market cycle?


March 10, 2020
Subject | Coronavirus impact | Macro views

Last Friday, Russia surprised markets by refusing to the production cuts the rest of OPEC+ supported – cuts that were needed to stabilize oil prices in the face of the coronavirus-related hit to global demand. Saudi Arabia responded over the weekend by announcing an actual increase in oil production. This comes on the heels of an announcement by Italy effectively shutting down much of northern Italy.

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Fed cuts rates in surprise move


March 3, 2020
Subject | Macro views

In a surprise inter-meeting move this morning, the Federal Reserve (Fed) announced a 50 basis point cut in U.S. interest rates to the range of 1% to 1.25%, attributing the cut to the evolving economic risks from the coronavirus.
 
The Fed decided to cut rates on its own, without a coordinated move by other major central banks, after the G-7 conference call earlier today.  The Fed had the most room to move, as U.S. rates were higher than those in the other G-7 countries.
 
The market had been expecting a rate cut at the next Federal Open Market Committee meeting, but the inter-meeting timing of this cut caught the market by surprise.  Immediately following the announcement, fed fund futures rallied, indicating that the market expects to see additional rate cuts, and short-term rates fell faster than long-term rates, steepening the yield curve.
 
The economic impacts of the coronavirus are mostly yet to come in the United States and are highly uncertain.  From that perspective, we view the Fed’s move as a type of “insurance cut.”  Going forward, we expect markets to be driven by growth expectations in the face of the spreading virus.  The Fed move on its own will likely have little impact on the path for economic fundamentals in the near term, and hence the ultimate impact of this move on risk markets is unclear at this stage.

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Coronavirus knocked our 2020 outlook off track. But maybe not for long.


March 3, 2020
Subject | Coronavirus impact | Macro views

It wasn’t long ago that the ink was drying on our 2020 outlook. In it, we touted the conclusion of the third major policy-driven growth scare (along with 2012’s European debt crisis and 2015’s Federal Reserve [Fed] rate hike) of the elongated business and credit cycle. Stable growth and supportive policy were to be the theme of 2020. The Fed had already overturned the 2018 rate hikes and had successfully eased financial conditions, while the Trump administration had inked a Phase 1 trade deal with China. China, for its part, was working to stimulate its economy. The January reading of the Institute of Supply Management Manufacturing Purchasing Managers Index, as good of a leading indicator of economic activity as any other, would have traditionally been viewed by us as a resounding affirmation that the growth scare had passed. “Risk on!” we would have rejoiced.

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