Hearing The Unmistakable Roar

The word, unprecedented, sums up Q1—ranging from market volatility to fiscal and monetary initiatives worldwide. Here’s the quarter, in our view.

04.22.2020 - Ian Riach, Chief Investment Officer

Last quarter, we highlighted the quote: “Bull markets don’t die of old age. They are killed by recessions.”[1] In February, recession fears, caused by COVID-19, hit global equity markets so hard we swiftly entered a bear market.[2] From its high on February 19 to its low on March 23, the S&P 500 Index declined approximately 34% in local currency terms.[3] The S&P/TSX Composite Index fell precipitously—approximately 37.5% from peak to trough over the same period.[4] No equity market was spared as foreign bourses experienced similar declines.

Canada’s market took a “double whammy.” We felt the virus effects and got caught in the Saudi Arabia/Russia tug-of-war over oil market dominance. Both countries flooded the market with supply, sending oil prices tumbling. Domestic energy stocks were pummeled, which contributed to Canada dropping further than our developed market peers.

The bond market was also turbulent as government sector yields plumbed new lows while investors sold riskier assets indiscriminately. In fact, the corporate bond market displayed characteristics of a liquidity crisis, not just an economic crisis, as trading—in anything nongovernment-related—froze.

We’ve also seen unprecedented policy response from central banks and governments. To inject liquidity into economies, central banks worldwide lowered interest rates and reinstituted quantitative easing. The US Federal Reserve is replacing its previous purchase program—which featured weekly limits—with a version essentially providing unlimited support.[5]  To help ensure financial markets function properly, the Bank of Canada announced that, as well as purchasing Government of Canada bonds (including Canada Mortgage bonds), it has instituted additional support programs in short-term money markets.[6]

All levels of governments have offered substantial fiscal support. As of Q1, the US aid package stands at an eye-popping $2 trillion, or approximately 10% of GDP.[7] Canada’s package amounts to $202 billion.[8]  What may be more telling is Finance Minister Bill Morneau’s statement,“…there’s not a cap…”at a March press conference.[9]

Given the staggering levels of monetary and fiscal support, there are concerns about longer-term economic effects. For instance, will there be a sudden inflation spike due to all the money injected into the economy? Or, what happens to tax rates once we are through the crisis? Higher taxes tend to temper growth. These are questions for later. Right now, extraordinary measures are required to soften the blow of recession and likely avoid a depression.

We expect markets to remain quite volatile in the short term, as fundamentals are unclear. Markets seem to be trading on the whims of news flow and heightened anxiety. In these uncertain times, we are focused on the longer term. Looking beyond the next 12 months, returns for equities look much more attractive than for bonds. With this in mind, we will add to equities on a measured basis over the coming weeks and months.




  1. Ian Riach, “Equity Markets Strong Across the Finish Line,” Perspective, Winter 2020, Vol. 17, Issue 1.
  2. A “bear market” is commonly described as a decline of 20% or more.
  3. Source: Bloomberg L.P.
  4. Source: Bloomberg L.P.
  5. “Federal Reserve announces extensive new measures to support the economy,” Federal Reserve Board, March 23, 2020,
  6. “COVID-19: Actions to Support the Economy and Financial System,” Bank of Canada, March 24, 2020, Modified April 3, 2020,
  7. Steven T. Dennis, Mike Dorning, Billy House, and Laura Litvan, “House Faces Urgency to Act on Senate’s $2 Trillion Virus Rescue,” Bloomberg, March 25, 2020, Updated March 26, 2020,
  8. Kait Bolongaro, “Trudeau unleashes cash drop in bid to revive Canada’s economy,” Bloomberg News, March 27, 2020,
  9. Morneau says there is no cap on government spending to fight COVID-19 economic crisis,” CBCNEWS, March 27, 2020,


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