As you are no doubt aware, global stock markets have continued to experience selling pressure. The S&P500 is down over 13% from its September highs and off almost 7% in December alone. All major global equity indices are in negative territory for the year. Closer to home, the TSX is down more than 10% year-to-date.

You’ll recall in my mid-October Market Commentary I said, “It is also interesting (and problematic for those that like to speculate or “time the market”) that there were real signs last week that the computer-driven algorithms likely played a big role in fueling the equity sell-off. This isn’t the first time this has happened, and it won’t be the last. What this does highlight for us (again) is that panic-selling is always the worst move and leads to poor decisions.” Several months later, the algorithm selling continues to be a plague on the market. These trading platforms succeed especially during lower-volume periods, which we are in now. We also have the added burden of tax-loss selling season where investors will often indiscriminately sell great companies that are down year-to-date, in order to offset realized gains from earlier in the year.

It is evident that investors are coming to terms with the reality that corporate earnings growth will slow somewhat over the next year. Corporations base their value on future earnings power and as such, investors are likely reassessing the prices they are willing to pay for reduced earnings.

All of the above factors make for a perfect storm. Momentum will likely commence swinging the other way (upwards) and as such, we are ready to take advantage of that. In the meantime, you are well-positioned to sit tight and continue collecting dividends & interest from your high-quality investments.

The economy is cyclical. There will always be phases of growth followed by a slowdown and ultimately a recession (which RBC does not forecast for 2019). What is important to understand at the moment is that we are likely still in the latter part of the economic growth stage. While the current market action can be unnerving, we need to remember that this is a process of resetting future growth expectations, not the result of an imminent recession or crisis. This recent article, written by our chief investment strategist, Jim Allworth, goes into detail regarding what stage of the cycle we are in and how best to position oneself going forward.

My strategy remains the same:

• Establish an asset allocation target that suits your investment goals
• Buy high-quality companies that have proven themselves through the various business cycles
• Seek companies that pay an income and buy them at fair or undervalued prices; hold cash & fixed income
• Rebalance back to the target asset allocation when necessary

Adhering to a disciplined process, has been shown to reduce risk and enhance returns over time, which is why you are not down as much as the S&P500 & TSX.

Please do not hesitate to reach out with any questions or concerns. I’m happy to discuss in detail your portfolio or any other aspect of your financial affairs.

Thank you again for your loyalty and trust. I take this responsibility very seriously and always remember, together we will get through this.

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