Global financial markets have delivered mixed results so far this year on the back of decent, but uneven, economic growth, firming inflation and tightening monetary policies. Although a variety of leading indicators have softened somewhat, the consensus outlook for global growth in 2018 and 2019 remains the best since 2011.
I truly believe this is part of a normal cycle and there are still constructive positive signs in the global economy. It should continue to expand at a steady pace. Companies should be able to continue to grow their earnings at a healthy rate. RBC Capital Markets monitors leading indicators and they still suggest the risk of a global recession in the next 12 months remains nominal.
This month we have finally watched the markets react to rising interest rates and trade wars and perhaps we are experiencing a much overdue correction. Since the 2008/2009 crisis, every individual and corporation has been addicted to easy money (low borrowing rates). Lower borrowing costs meant higher corporate profits. The U.S. economy is really strong and the Fed has to continue to raise rates to keep inflation in check and make sure the economy does not overheat. The Fed has now raised interest rates 8 times since late 2015. As interest rates rise, investors get out of bonds which drives down their price and pumps up the yields. The 10 year treasury hit 3.24% today which is the first time in seven years. This has also hurt bond fund holders as well.
As of the end of September - Canadian stocks were only up 1.4%. This month’s performance has wiped out those gains. Some of the true blue chip stocks are performing poorly. The Canadian market has been a tough place to make any gains this year.
To say the least - stock picking has been tough this year. Navigating the sectors remains a challenge and oh how I wish I had that crystal ball. So here it, what I know. Stocks are ON SALE and cheaper than they were on September 30th. Now I’m not sure how long the sale will last or how much of a discount we may be able to buy at but there are some bargains on good quality corporations. I think the U.S. market will continue to be a good place to invest but any new investments I would hedge to the Canadian dollar using a fund that makes sure we take that risk away. I have started to tread into emerging markets and international markets and so far it has not paid off but as part of the global growing economy they are there for diversification and future potential growth. I am seeing a trend this year where mutual funds are outperforming ETFs with active management and good stock picking in Canada, the U.S. and beyond!
Try to remember that we must not panic or make quick decisions in these situations and keep our eye on the longer term. We are not day traders and we are not market timers. Our team continues to strive to provide the best overall wealth management and exceptional client service. The markets never tell me when they are going to correct so my day still stays the same although longer than usual. I conduct my client reviews that were scheduled, continue to watch and monitor the markets, research new and alternative tax efficient investments.
In closing - stay on course. As always, I will continue to monitor things as they unfold. Please feel free to call the office if you’d like to arrange a time to chat.