Blog Hero Image

Posted by Greg Taylor on Jul 7th, 2020

Don’t forget to stretch for the second half

2020 was never going to be a dull year. As it started, investors were celebrating the signing of the long-awaited US-China trade deal and markets were at record levels. But the US election was everyone’s prime suspect to be the event that would control the narrative and direction for the year. Oh, how quickly things changed. While Chinese delegates were in Washington signing the trade deal, the country was already dealing with a disease outbreak that would quickly spiral out of control and destroy many lives around the world.

How quickly everything changed is a great reminder to investors of why they must always be ready to adjust their plans and positioning. As Iron Mike Tyson famously said ahead of a title fight, “everybody has a plan until they get punched in the mouth.”

This was supposed to be a year the central banks sat on the sidelines, as they normally do in election years, so as not to seem political. With that backdrop, many expected interest rates to creep higher with global growth. The yield on the US 10-year Treasury was supposed to approach the 2.5% level. No one was expecting that by mid-March rates would be slashed to zero and bonds would rally to record high prices.

The global pandemic seems to have changed our world forever. Simple tasks such as going to a restaurant, watching a sporting event in a crowd or even shaking hands with a stranger seem foreign. We all must adjust to the new normal and be ready to adjust again with the world. ‘Buy and forget about it’ seems to be one of the casualties of the pandemic. The new normal looks much more volatile.

The VIX index, which looks at implied volatility, is well off the highs of March, but that doesn’t mean volatility is gone. There are many ways to measure volatility. One way that seems appropriate is to see how often prices move in dramatic fashion. Morgan Stanley looked at this by tracking three sigma cross-asset moves (a major price move in any asset relative to the previous day’s implied three-month volatility) and found that 2020 has already had more of these events than any year since 1998. Things don’t look to be calming down anytime soon.

Fears of a second wave of virus cases crept back into the equity market in June and a spike in cases in certain states has caused some of the economic reopening plan to be delayed or rolled back. Until we get a vaccine that is widely available and deployed globally, it appears the new normal will include the virus. Headlines around this will dominate investments and swing prices. But the more complex issue is still to come with the US election.

Regardless of his social beliefs, President Donald Trump has been very positive for the US stock market. Entering the year, betting odds had him easily winning a second term. But as the virus has disrupted many things, it has also affected the election. Debates around how he and his administration handled (or not) the virus have dramatically altered the polls, which now show the Democrats potentially sweeping the election. This event has not been priced into the market and will become the story for the summer.

How a desperate President Trump will respond to worsening polls is becoming the biggest risk to the market. Does he lash out at his opposition even more than before or does he throw money at the problem in the form of tax cuts and stimulus packages? Does he go back to his old favorite plan of engaging in a trade war with China?  Any or all of the events will be difficult to predict and model.

The first half of the year is now in the books. After a violent rebound that resulted in the strongest quarterly rally in many decades, predicting the second half of 2020 is very difficult. Safe-haven assets such as gold and large-cap tech stocks have led and appear poised to continue winning.

By the numbers as at June 30, 2020.

A rotation towards cyclicals would go a long way to broaden out the rally and place it on stronger footing. For that to occur, global growth needs to reemerge as the story. To watch for signs of this happening, look for a weakening US dollar, a higher 10-year bond yield and a breakout in commodities.

The rebound in equities has been impressive off the March lows, but the all-clear has yet to be blown. We risk having priced in too much good news, which means disappointments will be meet with violent selling. A defensive posture for the second half may be prudent, but could also look foolish in the face of so many measures to promote higher prices. The only thing that feels certain is more uncertainty. Plan accordingly and be ready to adjust to new facts. Flexibility has never been more important.

— Greg Taylor, CFA is the Chief Investment Officer of Purpose Investments


All data sourced from Bloomberg unless otherwise noted. By the numbers displays total returns for the month of June, 2020.

The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Greg Taylor, CFA

Greg Taylor is the Chief Investment Officer of Purpose Investments. A data-driven manager with a focus on managing risk through active-trading strategies, Greg specializes in finding and exploiting pockets of volatility in the market to drive returns. He spent more than 15 years managing pension and mutual fund assets at Aurion Capital Management. He also held a role of senior portfolio manager at Front Street Capital and LOGiQ Asset Management before coming to Purpose Investments.

Greg serves on the investment committee for the MS Society of Canada and advises the finance program’s portfolio management course at Bishop’s University. He has won numerous Brendan Wood International “TopGun” awards and is a regular host and guest on BNN Bloomberg and Toronto’s all-news radio station, 680News. Greg is a CFA Charterholder and has a BBA in Finance from Bishop’s University.