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Good morning,

I trust everyone had a restful weekend

As offices and businesses continue to open, the kids get back to their school “routines” and the days are getting shorter, I was reminded on the weekend of the importance of sleep that we ALL need to keep at the forefront of our priority list.

Remember, if we take care of ourselves first, we can have the peace of mind that’ll enable us all to take care of each other.

For those interested in the importance and science of sleep, here’s a really interesting book for some fall reading…..Matthew Walker, Why We Sleep: The New Science of Sleep and Dreams.

“AMAZING BREAKTHROUGH! Scientists have discovered a revolutionary new treatment that makes you live longer. It enhances your memory and makes you more creative. It makes you look more attractive. It keeps you slim and lowers food cravings. It protects you from cancer and dementia. It wards off colds and the flu. It lowers your risk of heart attacks and stroke, not to mention diabetes. You’ll even feel happier, less depressed, and less anxious” Matthew Walker, Why We Sleep: The New Science of Sleep and Dreams

Now to the markets…..

Global equity markets experienced some jitteriness over the past week, following through on some of the weakness that began the week before, full of noise and static. We provide a bit more colour on the recent action and address the growing importance of the technology sector. We also provide an update on the coronavirus front, with particular attention paid to the rising trend of cases in various parts of the world, including Canada, and a setback on one of the vaccines being explored in a late stage trial.

Coronavirus update While investors are not as concerned as they once were, the virus continues to spread throughout the world. Canada has seen its average new daily case levels trend higher in recent weeks, indicating that the rate of spread is now rising after a period of stagnation. While the figures remain well below the levels seen during the first wave, it bears monitoring, particularly in light of the back to school and fall seasons, where indoor gatherings will become more prevalent.

Despite the ongoing pandemic, investors remain less concerned than they were earlier this year. The rationale is based on the view that fatality rates are lower and governments are likely to employ more localized containment approaches instead of the full scale lockdowns seen across much of the world months ago. Furthermore, hope for a vaccine remains relatively high. On this front, some disappointing news over the past week should serve to remind investors that developing a vaccine that is safe and effective is a difficult task and is by no means guaranteed. A late-stage vaccine trial was temporarily suspended for safety reasons but it’s been approved to restart over the weekend, positive news heading into the week so we should see some green this morning.

Market concentration Markets sold off over the past week, continuing a trend that started just over a week ago. Notably, the level of volatility this past week did not increase but remained relatively flat, suggesting investor anxiety has not deteriorated and the action remains reasonable and relatively normal. The market decline is being led by higher growth stocks, many of whom happen to be tied to technology products or services in one way or another. Many of these stocks have led the market higher since the lows in March, and so it’s not a real surprise to see investors taking some profits at this juncture. We have been selling and crystalizing some gains, but mainly looking for opportunities in these sell-offs to add to positions.

Always remember, we are looking for opportunity amid uncertainty

In our view, what is more interesting, and worth appreciating, is how meaningful the technology sector has become. About five years ago, the sector represented a measly 2% weight in the Canadian equity market and a much more substantial 20% weight in the U.S. Today, those weights are nearly 10% and just under 30%, respectively. These numbers are even higher if you factor in stocks that are classified as being in other sectors but are very much technology oriented.

The level of concentration is not necessarily uncommon. In Canada, the Financials, Energy, Materials, and Technology sectors have all accounted for a much higher weight in the market at one point in history. In the U.S., some of these same sectors in addition to Healthcare have also been significant weights in the market, albeit not as high as technology is today. Furthermore, the level of concentration tied to a few stocks or sectors is actually higher in other parts of the world like South Korea, India, Germany, France, Italy, and Australia for example. Nonetheless, there’s no denying the fact that technology and related areas have grown in their significance and are now a much more important driver of equity market returns and risk in North America and beyond.

Our investment approach remains focused on ensuring the proper level of risk is being taken over time to deliver on our clients’ required outcomes. This level of risk is unique to each client, and may also be quite different than the stock market itself. And unlike the broader market, we have the ability to actively manage our client portfolios to ensure that appropriate exposure across asset classes and sectors is being maintained in our portfolios at all times

“Sleep is the single most effective thing we can do to reset our brain and body health each day - - Mother Nature's best effort yet at contra-death.” Matthew Walker, Why We Sleep: Unlocking the Power of Sleep and Dreams