Looking Forward to 2021

Hello,

 In my year-end market updates, I usually end up thanking everyone at the end of the email. I want to thank you first and foremost this year as we have never been through a year where so much was in question. Believing in my process and knowing that I would focus my energy and time on getting portfolios back on track from a very large stumble in the springtime required a lot of trust on your part. I am very grateful for that trust and this would be one of the years I am most proud of sitting in this chair. I view my job as a risk manager and build portfolios accordingly, but you never truly know how well they are built until they are tested.

Policymakers did an amazing job this year and because of their proactive approach to dealing with the pandemic, I was able to execute my job knowing they were doing the right things. I can not remember a time where everything was so well aligned to help me do my job for you in the face of so much uncertainty. Truly, thank-you for letting me do my job. Now, for those who just want to know where we are headed, I can sum it up pretty easily:

A new bull market is forming. Investors will continue to be rewarded.

In case anyone thinks I am alone on my optimism island, please note the following technical and fundamental improvements that haven’t really reached the headline news:

1) Canadian dollar – a strong improvement

2) Russell 2000 index – small-caps outperforming

3) Commodities rallying – copper breaking into new highs

4) Market breadth finally burst onto the scene in November

While we are having to adjust economic expectations down slightly for the first half of 2021 due to government restrictions being reimplemented globally, the market understands that this is a temporary effect on the economy. With a thoughtful playbook already well intact by policymakers, we saw Canada vault back to an 80% economy almost overnight this past summer once restrictions were removed. With vaccines now being rolled out, this very unfortunate spike up in COVID cases will be much less of an issue 12 months from now and that is what the market is focused on.

I can certainly go into a lot more detail as to the fundamental reason that the four points mentioned above (and others) speak to the start of a new bull market, but the easy way to state it is; the first three points (CAD, Russell 2000 and Dr. Copper breaking out) deal with risk appetite improving by investors and the fourth point has to do with the stock market getting much more healthy as the stock market rally is now starting to include sectors and industries that have underperformed this year.

When a new bull market starts, and we have not seen this for a while, investors on the sidelines feel the most amount of pain. When you have convinced yourself that the world is not in a good place and that we are not going in the right direction anything that exists as a negative on the landscape is amplified in an investor's brain. For this individual, the stock market must be confused, not them. As we all know, shutting off the short-term noise is the only way to be a successful investor. JPMorgan came out this week and suggested 2021 will be a market nirvana and could surge 25%. We are seeing one of the best backdrops for equities we have seen in our lifetime. High cash balances, low-interest rates and improving economic growth, so I am in a similar optimistic camp.

Short-term noise will persist and debates about how to pay for all this debt will continue. I am monitoring all and we are able to pivot very quickly when the time comes to get more defensive. The Canadian government is spending more money per capita than every other G7 country to deal with our lack of economic growth and really get our economy back on track. The global synchronized downturn is now turning into a globally synchronized upturn and healthy consumer balance sheets will provide yet another type of stimulus for next year. I really look forward to the next 12 months as it continues to confuse the nay-sayers and reward disciplined investors.

Best regards,

Kris