Since my last communication entitled, “Everybody Wants To Talk About Inflation” (see May blog post), there continues to be an appetite for this subject matter, along with speculation regarding interest rates and where they’re headed.
What emerged from the Federal Reserve meeting in June was that not even they can time the market (no surprise there) – as evidenced by their view of future rates shifting 60 basis points (bps) higher while at the same time the yield on the 10-year Treasury dropped 15 bps. What does remain clear is this - sitting on cash earning almost nothing, while waiting for the perfect bond or GIC entry point, is not a profitable strategy.
June proved to be another good month for investors in the equity markets with the S&P500 gaining approximately +2.2% and S&P/TSX (Canada) up roughly +1.2%. Year-to-date returns are now in the double-digits for many portfolios and this has got me thinking a lot about the real possibility of skewed anticipation moving into the future.
Recently, Natixis conducted a Global Survey of Individual Investors (see HERE full report) where they broke down on page 7, the “expectations gap” for portfolio returns, and it’s starkly evident that investors are expecting far higher returns than that of the financial professionals. It’s very educational (and perhaps shocking) to note that in every country (according to the sample size), this gap is very large. Here in Canada those polled stated their expectation is 11.2% annually, while the professionals (including yours truly) come in around 5.1%, before inflation. The US individuals in the survey cited 17.5% annually!
In the event that those reading this have similar hopes, I want to caution - this is not realistic. Markets ebb and flow and while the last few years have been remarkable, at some point we’ll see a correction. That being said, I do not feel at this time there is any reason to be too pessimistic. I am very pleased with how client portfolios are progressing and expect there to be continued/steady growth going into the end of the year.
I wish for all of you a very pleasant and sunny summer with some semblance of “back to normal”!
Libby
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