Today was a quiet day in the markets, and the first double (not triple) digit move in the Dow Jones Industrial Average in weeks. Today's trading followed the release of US initial jobless claims data, which indicated that 5.2 million Americans filed for unemployment last week. That figure brings American jobless claims since the pandemic started to just over 20 million, roughly equivalent to the total jobs gained in the last ten years. Elsewhere:

• Gold closed above $1700/oz, at $1717.68

• The big five banks were all down, with Royal Bank down 1.9% and National Bank down 4.1%

• An S&P 500 ETF jumped 2% after hours on reports of Remdesivir (produced by Gilead Sciences) effectively treating severe symptoms of coronavirus

Will Employment Return to Pre-COVID Levels?

An unfortunate reality of the COVID-19 pandemic is that many of the jobs that have been lost during this shutdown aren't likely to return. As time goes on, businesses that were initially closed temporarily will close permanently, and replacing that capacity will take time.

Furthermore, even once businesses reopen it's unlikely that they'll employ the same number of people as they did before COVID-19. Many employers will try to operate with as small of a payroll as they can, at least initially, and the institutional inertia that keeps payroll figures stable has been snapped. Almost every company in the developed world is going through a forced restructuring right now, and that's not good news for those trying to enter the labour market.

Bloomberg Recession Probability Hits 100%

Today, Bloomberg's recession probability model reached a 100% probability of a recession in the next twelve months. The model has indicated the two recessions that occurred since it came online, as you can see in the graph below:

To come up with this figure, Bloomberg draws financial, economic and trade data from a variety of sources. This probability index is somewhat similar to the inverted yield curve, in that it's not clear to what degree they function as leading indicators. Reaching 100% is certainly a milestone, but similar to Amanda Seyfried's "fifth sense," might just be telling you that it's already raining.

Market Outlook

If we define a recession as two consecutive quarters of negative GDP growth, we can pretty safely say that we're in the beginning of a recession. Economic activity has decreased sharply since pandemic control measures were put in place, and likely won't improve rapidly until those control measures are lifted.

Investing in a recession is a tricky game. There is significant value to be found in equity markets, but maintaining liquidity should be every investor's first priority. Taking care of your cash position, and ensuring that you have sufficient liquidity to weather the rough times ahead, is the first step to taking advantage of this market.

We're expecting volatility in the weeks ahead. News of possible treatments (and their effectiveness) will move the market significantly, and the lifting or holding of control measures will significantly affect the outlook. Investors should therefore prepare for their equity holdings to fluctuate in value, and deploy cash only if prepared to do so.

If you'd like to talk about these events or discuss your portfolio, don't hesitate to reach out to us at 604.643.0101

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