2020 Roller Coaster

It’s been a roller coaster of a year, to say the least, and financial markets have been no exception. Through February and March, global stocks experienced one of the most abrupt sell-offs in history.

Not to be outdone, the ferocious rally in stocks through April and May was similarly extreme; this year has been one of the most volatile on record. Check out this chart that shows the path of Canadian stocks since the start of 2020 . The only thing missing is the loop-the-loop.

Throughout most of June, this roller coaster has continued for stock markets. Good days have often been followed by poor ones. The economic damage caused by the global shut down remains difficult to forecast, a vaccine is not on the immediate horizon, and second waves are popping up in many locations around the world. It’s clear that volatility is here to stay for some time, but while the short-term remains murky, we remain optimistic over the medium- to long-term.

Government support has been robust and prompt, which seems to have stabilized the economy, stock markets, and kept individuals and businesses afloat. Although most would agree that social assistance at this time is prudent, many are concerned about the levels of debt being incurred by governments. For several years now, Canadian government debt has been climbing and 2020’s spending is sure to push it to new highs. How will Canada repay all this debt? The short answer is, it won’t.

Debt shouldn’t simply be measured in absolute terms – dollars and cents. It should be evaluated relative to some measure of income. Just like you wouldn’t say an individual who owes $500,000 on a loan is in trouble without knowing their income (do they make $20,000 per year or $2 million per year?), you can’t say a country is in trouble simply because it has $140 billion in debt outstanding. In fact, when measured relative to GDP (Gross Domestic Product, or an approximation of the total “income” for a country), Canada has had higher debt throughout most periods over the last 100 years.

The last peak in Canadian government debt occurred shortly after World War II. The debt was never paid back in the way you or I would repay a loan from the bank. Instead, the government slowed down its borrowing, the economy grew, inflation took hold, and 10 years later the debt load didn’t look nearly as menacing.

This is not to say fiscal restraint will be easy in the years to come, nor that the government should spend money like a drunken sailor on shore leave. However, the heavy debt loads incurred by Canada need not be the ticking time bomb some fear.

From your WLWP Team

Disclaimer: This information has been prepared by White LeBlanc Wealth Planners who is a Portfolio Manager for iA Private Wealth® and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.

iA Private Wealth® is a division of iA Wealth Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.