With updated numbers on how this COVID-19 pandemic is expected to impact the Canadian and global economies coming out on a frequent basis, market reactions to these expectations is likely to continue to contribute to significant market volatility moving forward.
Of late, a number of projections made by the Bank of Canada on the economic impact of this pandemic have been pared back from previously very poor estimates, spurring the recent stock market rise in recent months.
I am still of the view that not enough of the structural damage that has been caused by this pandemic has been priced into the stock market, and continue to believe the recession we will see in the coming quarters will be a deep and prolonged one.
Despite improved projections of how Gross Domestic Product (GDP) may rebound in a v-shaped fashion quicker than is being anticipated by investors, rising levels of debt fueled by extremely low interest rates is likely to throw debt to GDP ratios and other measure of indebtedness related to the ability of average Canadians to service their household debt out of whack, to a degree never seen before.
What investors should be paying closer to, in my view, is not necessarily aggregate GDP or unemployment numbers, but rather the quality of these numbers.
If five $100,000 per year full-time jobs are lost and two $30,000 per year jobs are added, the net loss of those jobs may not look too bad on the surface if one was expecting a loss of five jobs, but it is a more complicated process to truly understand the structural damage caused by this recession in terms of job quality and levels of indebtedness.
Invest wisely, my friends.
