October 2020 Market Update

October 8, 2020

What You Need to Know

Ethan Dang, CFA, MBA
Portfolio Manager

October 8, 2020

Looking to the Other Side

As COVID-19 developments and the path of global economic recovery remain key points of concern and uncertainty for businesses and investors, financial markets continue to look ahead and currently indicate a better than expected future. Global markets continued to advance during the third quarter of 2020, driven by supportive monetary and fiscal policies, positive vaccine and anti-viral treatment developments, improving economic data, and so on. A number of stock indices, such as the S&P 500, have rallied back to near pre-Covid levels. This can certainly feel like a disconnect from the real economy, where many businesses are either shutting down or operating only at partial capacity.

There is a reason for the disconnect. Despite the remarkable rally on the surface (i.e. at the index level), the recovery has been extremely uneven underneath the hood (i.e. at the sector level). The rally has been led mostly by the Technology sector (driven by large, mega-capitalization growth stocks and work-from-home related stocks), while the economically sensitive sectors, such as Industrials, Financials, and Energy are still lagging in the recovery. Because larger companies carry a bigger weight in the index, the big technology stocks were able to pull the overall index along as they advanced. To use a sports analogy, it’s like the situation where a superstar basketball player can carry the entire team and deliver a victory. However, this type of narrow leadership and heavy reliance on a superstar sector (or group of technology stocks) increases concentration risk and is likely not sustainable. Hence, it is important to see a sustained rotation in the form of capital reallocation back into the economically sensitive sectors to signal a sustainable economic recovery going forward.

Given that major financial markets are near pre-Covid levels again, where could we go from here? As is often the case, some investors will be bullish (positive), while others will be bearish (negative) on the markets. The beauty of the markets is that they have something for everyone, in the sense that it is easy to find evidence to support our viewpoint and confirm our biases if we are not careful.

The bulls will point to:

  • Don’t fight the Fed (massive monetary stimulus from central banks)
  • Additional government fiscal stimulus is coming (between $1.6 and $2.4 trillion is expected in the U.S.)
  • Positive vaccine and anti-viral treatment developments (multiple vaccines are in their final phase 3 trials)
  • Improving economic data with actual data beating expectations (we are past the economic trough)
  • Sentiment surveys show that investor sentiment is still bearish (often a contrarian indicator at extremes)

The bears will point to:

  • COVID-19 is still here with increasing cases and deaths; a second wave could be coming in the fall or winter
  • Vaccine efficacy and distribution challenges; people’s level of willingness to take the vaccine
  • Stock valuations are stretched with narrow leadership and excessive speculation in technology stocks
  • Economic recovery is flattening out after the initial bounce from the trough
  • U.S. election uncertainty; a contested U.S. election could create market anxiety (such as Bush vs. Gore in 2000)

The list can go on for both sides. To have a balanced viewpoint, we on the Investment Committee at McIver Capital Management must consider the positives and negatives. Furthermore, we have to consider the weight of each factor as an input into the market, which is a complex system.

Overall, our view is to expect short-term volatility and potential weakness heading into the U.S. election, but longer-term strength beginning almost immediately following the declaration of a winner. As long as governments and central banks are willing to do whatever it takes to support their economies, the markets will have a counter force against economic shutdowns while COVID-19 vaccines are being finalized.

Neil, Paul Cross and I recently held a Webinar on behalf of Michael Campbell’s Money Talks (CKNW) to which you would have been invited. In it, we discussed our sophisticated institutional caliber investment process, but perhaps more timely, the investment challenges and opportunities of a potentially contested U.S. election. If you have yet to watch it, please find a YouTube version of it here.


Everyone at McIver Capital Management, particularly the four of us on the Investment Committee, which is tasked with managing the model portfolios daily, are committed to ensuring your assets are safe and properly deployed.  We do this by ensuring our sophisticated model portfolios remain true to their strategic (long-term) asset mix, in addition to making tactical (short-term) adjustments to each model when risks or opportunities present themselves.

Our (third-party audited, net-to-client) performance remains stellar, while continuing to experience just a fraction of the market volatility (Standard Deviation). This is the hallmark of high-quality institutional caliber portfolios. Our most recent performance can be found below:

Monthly Performance to September 30, 2020
Portfolio Dollar Growth to September 30, 2020

Please keep well!


McIver Capital Management
Ethan Dang CFA, MBA, BASc. (Eng.)
Neil McIver CIM®

The comments and opinions expressed in this newsletter are solely the work of McIver Capital Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author McIver Capital Management does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability. Investing in any of the securities mentioned above may not be suitable for all investors, as there are different types of risks involved with these investment strategies. Even if suitable to your level or risk tolerance, any or some of those securities may not be appropriate for your portfolio, depeding on what other investments you hold. Please note that, from time to time, we may have personal investments in any or some of those securities and that past performance may not be repeated. Please do not hesitate to contact us should you want to know more about them or have any related questions.


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