Happy New Year! Before I don my looking-forward hat, let’s go back to January 2019 (click here for my commentary) and revisit a few things. You may recall, we were all feeling somewhat shell-shocked after the beating the markets took in the 4th quarter of 2018, and rightly so – it was dismal! A year ago many said they were worried about the state of US/China/Russia relations and almost everyone in the various media outlets were throwing around the word recession. I said that the average return after a negative year was in the +12.5% range, and suggested that 2019 should be more than robust. I’m happy to report the markets both here and in the US/Europe fared even better.

Below you’ll see the 52-week, year-to-date, month-to-date and 1-week percent gains from our Canadian (S&P/TSX), Nasdaq, S&P500, DOW & European indexes. It’s really quite remarkable when taking into consideration what I’ve referenced above.

As of January 8th 2020:

*Source: Thomson Reuters

One cannot write about the beginning of 2020 without mentioning the US drone strike in Baghdad and subsequent retaliation by Iran, the night of January 7th (no casualties were reported). Undoubtedly there are more than a few of you who find this troublesome, and I am in that camp. However, the markets in the full first week of 2020, seem to be shrugging off these events (again, note the 1-week % gain above). That’s not to say we should ignore the situation, but I see this as an opportunity to remind everyone about the importance of a diversified portfolio which includes quality names with defensive properties. These guiding principles should continue to steer us nicely through 2020.

The US consumer continued to be the driving force behind the US economy all throughout 2019 and we’re expecting much of the same for this year. Here in Canada we mirror this behaviour. With fewer unemployed and savings rates at an all-time high, many signs point to further growth. That’s not to say some sectors won’t feel a further pinch (certain areas of manufacturing and oil), but overall there is room for continued positivity.

Some would claim that an inverted yield curve (long treasury yield is lower than short-term yield) signals that a recession is around the corner. South of the border this has often been an accurate indicator, but not so in Canada. All of this being said, a curious development has occurred over these past few months. Key U.S. Treasury curves have returned to normal after the inversion we saw in the summer of 2019, while Canada remains slightly inverted. This is the case in a number of other countries as well. One could argue that Canada’s yield is distorted by the fact that the Bank of Canada has not chosen to lower the policy rate, whereas the US did, several times throughout 2019. I consider the measured behaviour of the BoC to be prudent.

RBC has published a compelling piece entitled, Navigating the 2020’s, How Canada can thrive in a decade of change. Click here for full report. In it they discuss the idea that by 2030, Canada could be transformed from a natural resource-base to a more service-oriented economy. It won’t necessarily be smooth sailing all the way, but we are an educated and diverse population, which should propel us further ahead than many other countries.

I for one am excited about all that lies ahead in 2020. There are so many reasons to be optimistic and grateful.

All the best and once again, thank you for your loyalty and trust.

Libby

 

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