We continue with your steady diet of free investment insight and advice. I hosted the Davis Rea Investment Counsel Third Quarter Conference Call for clients.

This is a free inside peek at the Davis Rea team’s investment strategy and outlook featuring the company’s Chairman and CEO, Chief Strategist and Portfolio Managers.

Topics include managing money during a slowing and uneven economic recovery, the possibility of COVID-19 vaccines, the impact of the U.S. Election, big technology in the crosshairs, ramifications of huge government deficits and debt loads, the potential for higher taxes, stock and bond market outlooks, and more.

Listen to the Davis Rea Investment Counsel Q3 Conference Call here. You’ll be asked to submit your first and last name and then you can listen. The call lasts about 45 minutes.

And read a few excerpts below from Davis Rea’s Q3 Report:

The Big Picture


• The world’s economies are growing and should continue to do so, though at a more gradual and uneven pace as we head into 2021.This is a plus for corporate earnings, commodity prices and the Canadian dollar.

• Economic expansion, growing earnings, sustained low inflation and rock-bottom interest rates are supportive of equity markets.

• The U.S. election has the potential to generate considerable short-term volatility, but it is likely that the upward economic and equity market trends will continue after inauguration day, no matter who wins the election.

Economy, Commodities & Currencies:

The world’s economies have rebounded strongly, but they are now transitioning to the recuperation phase, where the pace of reopening will slow, or even temporarily reverse, and the impact of business and household insolvencies will be felt.

Economic recovery has boosted commodity prices and corporate earnings, but both will follow more uneven recovery paths in the recuperation phase, that is likely to extend through 2021.

The Canadian dollar is expected to follow commodity prices higher. It has already recovered nicely, from 69.0 U.S. cents in March to 76.7 cents in late August.

Additional gains should be slower in coming, with a break above 80 cents unlikely until 2021.

Inflation is expected to remain low for the next 12-18 months.

Short-Term Interest Rates and Bonds:

  • Central banks are likely to keep short-term interest rates close to zero through 2022, possibly longer.
  • They are also expected to continue buying bonds to keep yields as low as possible to help fund government budget deficits and encourage continued expansionary tax and spending policies.

Equity Markets:

  • Equity markets have recovered strongly since late March. As the world’s economies transition to recuperation, the upward trajectory in equity prices is likely to slow, and more volatility is anticipated.
  • Low interest rates should support equity valuations, and with earnings growing, equity prices are expected to trend higher.

Key Risks to Outlook:

Our base case outlook sees continued, albeit slow and uneven economic growth through the recuperation phase in 2021 and into 2022.

It assumes a reasonably orderly U.S. election outcome and $2-3 trillion in new fiscal stimulus.

A stronger outcome would occur if rapid dissemination of a COVID-19 vaccine allows a permanent reopening of economies, and the policy stimulus prevents most structural problems from being realized.

If economies keep struggling with the virus, the recuperation phase will be weaker.

This could trigger large-scale insolvencies among heavily indebted businesses and households and result in an extended recession or debt deflation a la Japan.

Polling data suggest that change is coming for the U.S. FiveThirtyEight’s analysis shows strong odds that the Democrats will take the Presidency and the House, and good odds that they also take the Senate.

These probabilities are rising as election day approaches. Nonetheless, U.S. politics are more volatile than ever, and anything can still happen.

Post-inauguration, the likely outcome is a functioning government that can implement its policies. Most potential outcomes in the Presidential and Senate races will generate this, and result in a stimulus package above $2, or even $3 trillion.

  • A Biden win would mean higher taxes and more spending on health, education, infrastructure, and climate, as well as more regulation (environment, student loans, banks, and private prisons).
  • Should Trump win, look for more tax cuts (likely on payrolls and capital gains), reduced spending on health care, Medicare and Social Security, plus more regulatory rollbacks.

Despite all the noise and angst Mr. Trump triggered, investors fared well. Large cap U.S. equities (S&P500) generated an annualized return of 14.9% over Trump’s first term.

Small cap stocks (S&P600) did poorly in contrast, returning just 3.8% per annum.

As we look ahead to the next four years, with a recession in the rear-view mirror and interest rates likely to remain very low, the odds favour more equity gains.