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Coronavirus Effects on Market Volatility

The coronavirus understandably has people worried. Here are a few of the key market points based on information provided by Manulife's strategic analysts. 

·       Last week’s retreat in equity markets drove home the sharp reversal from the strength of January, largely brought on by the COVID-19 (novel coronavirus) as the catalyst. This week markets are struggling with direction.

·       Canadian equities outperformed US and international equities last week and last month. We attribute this to the better valuation we saw late last year in Canada relative to other markets. Additionally, Asian equities outperformed, likely because of the early sell-off in these markets in late January.

·       In a surprise move the US Federal Reserve cut its benchmark rate by 50 basis points on the morning of March 3rd. While Chairman Powell commented in the press conference that the US economy was solid, his actions said otherwise. By cutting rates the Fed is signaling that the US economy faces headwinds. And by cutting rates outside of a set meeting, the signal was loud. This is why the markets sold off following the announcement. 

Acting on the advice of the strategic analysts that the US economy in particular was slowing and the possibility existed for a global correction, in discussion with you, we have been decreasing your portfolio positions in the US over the last year and decreasing your risk position overall.

·       At this point in time, the analysts don’t believe the current environment will become a recession. The earnings impact, however, hasn’t been fully realized. As such, until we have more clarity on the earnings growth impact of the coronavirus containment efforts in the US and other countries, for the time being, we’ll stay defensive. 

·       The coronavirus will disrupt the global economy and supply chains; it will affect global economic GDP. How long it will last is tough to say.

Understand your risks and goals, and try not to get caught up in the day-to-day news. Let the portfolio managers worry about that.