The stock market has a way of surprising even its most seasoned veterans, including myself. News feeds are full of headlines about a US president and his obsequious lackeys crossing lines daily - constitutional and moral alike – yet the market shrugs and grinds ever-higher. While democracy is tested, the market is preoccupied with inflation data, rate cuts – last week both here and in the US we saw a quarter-point cut – and whether tech stocks can sustain their lofty multiples. Investors are nothing if not consistent in their ability to bury their heads in the sand.

At the end of August I wrote, “Never Count Out Canada”, citing the fact that we had been steadily outperforming the US market this year. Now, more than three weeks later, that gap has widened, with the S&P/TSX (Canada) up ~22% year-to-date, comfortably ahead of the S&P500’s ~14%. I did a little digging and was reminded that the last time the S&P/TSX Composite was already over 20% YTD by early fall, was back in 2009 – and that rally didn’t fade; it accelerated into year-end.

The drivers behind our outperformance are two-fold. Energy has been a big component, with oil prices stabilizing and cash flow climbing steadily. Financials, after a tentative start to the year, have regained their footing as credit losses remain manageable and net margins have held up better-than-expected.

As an Investment Advisor, I am, of course, thrilled that my clients are doing so well. But I also know that many of you are undoubtedly reading this and wondering: when will it all end?

Markets rarely unravel for a single reason, but there are fault lines worth noting. Currently in the US, valuations in technology assume near-perfect growth, political risk is being ignored, and inflation remains sticky enough to complicate the rate-cut story. Canada, for its part, still leans heavily on energy and financials – strengths in the right conditions, but potentially vulnerable if global growth slows or if consumers feel the weight of debt.

So, where is the bridge too far? Likely at the moment investors stop asking the question. That’s why, as markets have advanced this year, I’ve taken profit for clients along the way – locking in gains and protecting the downside. Cash reserves are another way I keep portfolios well-balanced, ensuring optimism never turns into overconfidence.

As always, I am available if you have any questions. If you’re reading this and you’re not already a client – why not consider getting in touch with me for a complimentary portfolio review?

Libby

 

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