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Does the recent market upturn mean brighter days ahead? Stu Kedwell, Senior Vice President & Senior Portfolio Manager, Co-Head, North American Equities, RBC Global Asset Management, shares his outlook. He also breaks down the factors to watch for that could point to a quicker economic recovery. (Recorded on April 7, 2020)


Hello and welcome to the daily download. I'm your host, Dave Richardson. Today, I'm joined by Stu Kedwell, who is the co-head of North American Equities at RBC Global Asset Management. Stu, great to have you here this morning.

Good morning, Dave. Thanks for having me.

So Stu I think what a lot of investors are wondering: Yesterday, a huge up day on markets. Markets have opened up very strongly again today. What do you make of what's going on and what's causing this sort of renewed optimism in markets?

Yes, well, certainly the surge yesterday and the follow through today is quite something. You know, I always try to think that markets are forward looking. It's what they call a discounting mechanism. So when news is bad — but less bad —, that will be a positive for the stock market. And what we've seen on the health care side of this crisis is that while the headlines are still jarring, at the margin they're getting a little bit better. And with some of the forecast that has been put out by the province of Ontario and others, about different regions, we can now start to see when the crisis might be contained and when things will get better. And that has driven a fair amount of enthusiasm in the stock market. And that's been the driving factor here in the last couple of days.

Yes and it is important. And I think we highlight this through each bear market or downturn in markets, if we go back to 2008-2009, or 2000 and 2002, — and I know you were there for each of those moments in history —, the market is looking ahead and that’s why it is so important for investors to stay with their long term plan. Because sometimes, — and this may not be the final bounce back in this particular downturn — but often times the bounce is quite rapid out of these bear markets. And you want to be there for that bounce.

It's almost like a beach ball that's been put under water. And when your hands release it, it just flies right back up and you get a return to some degree of normalcy in the markets. You know, with everything we've seen so far, I think we're trying to think about this crisis in two ways. The first, from the health care front, is to understand how the number of cases could peak and what that scenario looks like. And Wwith each passing day, I think we have a better idea about how that looks. The next question that will be very important to sustain this strength is: when will the economy reopen and how profitable will it be when it reopens? So we're spending a lot of time now going through company by company, and a lot of conversations with Eric [Lascelles] on the economy about when could the economic output look similar to what it's looked like in the past? And that's a bit of a moving target here. So, we'll have to figure that out. Whether or not it's mid or late 2021, or 2022. That'll be the majority of our discussion today. AAnd as prices rise, the timing of that recovery becomes more important. TSo that's something that we're very focused on, as we've had a pretty substantial rally off the bottom. TSo that's the next task at hand for the analysts and the portfolio managers, and in the Iinvestment Ppolicy Ccommittee at this time.

Yes. And, really important in an event like this one, if there is that quick recovery — because we can bridge over the gap of the health situation and the somewhat shutdown of the economy — is to make sure those portfolios are positioned really well for the next leg up over time.

Exactly. What we are always trying to do is to maximize the return potential relative to the risks that we see in the context of the different mandates, and that's definitely the task at hand today.

Well Stu, thank you very much for your time. And I'm sure you join all of us in wishing health and safety to the families and loved ones of everyone listening in today. Thanks again.

A hundred percent. Thanks Dave.


Recorded April 7, 2020

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