Markets are up today so far.
How bad could this all get? Well (temporarily) very bad of course. If countries really start to restrict travel and if consumers are scared to shop and people become scared to go to work or are prevented from working then we could certainly have quarters of negative GDP growth. We are used to a system where even low real GDP growth such as 1 or 2% can be cause for a market decline. A U.S. and Canadian GDP decline, if it occurred, of say 10% is basically uncharted territory, not seen at least since the early 1930’s. Even a 5% drop would be considered very major indeed.
But, I am confident science will prevail and stocks will rebound. But they started out with a lot of high P/E multiples in the big names and that kind of exuberance could be gone for quite a few years at least.
I did deploy some cash over this event and most of that was too early. I want to retain some cash and not rush to buy. In buying a few things come to mind.
Aecon Group just reported a dividend increase and is optimistic about 2020. They are in a tough business and so that is a strike against the stock. But governments are also likely to support infrastructure through any recession and that is positive for them. So I increased my small position in that one this morning.
Thinking of high dividend investments: Boston Pizza is tempting at 9.2% yield and has already cut is distribution to what should be a sustainable level and is buying back units. But if coronavirus fears take hold, people may stay away from restaurants and things could get ugly for them. So… tempting but now seems risky.
The Enbridge rate reset pref ENB.PF.A yields 6.65% and the $1.02425 annual dividend is fixed until December 1, 2024. But then will reset to Canada 5 year plus 266 basis points. If the five year were to stay at today’s low level of 0.84% it would ten reset to pay 87.5 cents yielding 5.7% on today’s price. That does not strike me as a bad return given we would under this assumption still be in a very low interest environment. And I would consider Enbridge to be a very safe bet to certainly keep paying the distribution. On that note I will add to my position in this one today.
Everyone can look at their own portfolio weightings and risk tolerance (and capacity for risk) in deciding whether to risk grabbing investments at these lower prices or instead hunker down or even reduce positions.