“Life is a lot like surfing… When you get caught in the impact zone, you’ve got to just get back up. Because you never know what may be over the next wave.” Bethany Hamilton

Good Morning,

It’s hard to believe that we are almost through summer. We were fortunate enough to spend another weekend at the beach with family, friends and watching my kids in some of yesterday’s surf.

As some of you may know, I have been enamored by surfing and surf culture since I was young. I’ve always found it a fascinating, the charming connection we can have in the ability to ride a pulse of energy with Mother Nature. In my enthusiasm to understand surf, I was propelled to spend a part of my University in South Australia, participating in an International Business program at Monash University, an experience that certainly reinforced my passion for the waves.

Now, to be clear, I don’t pretend to be a good surfer but as surfing legend Phil Edwards once said, “the best surfer out there is the one having the most fun” which is certainly all we can do on the big waves of the Canadian Great Lakes.

It’s been said that no matter what conditions we find ourselves, we are all equal before a wave and we could not discover new oceans unless we have the courage to lose sight of the shore. As we head into the uncertainty of what the fall will bring, I encourage us to stop thinking about the next potential wave and start seeking out our own inspiring waves that can help give us motivation, direction and the courage to overcome the challenges that any wave rolls our way.

“You can’t stop the waves, but you can learn to surf” John Kabat-Zinn

And now, to the markets

Global markets have been relatively resilient through a summer period that has had its fair share of uncertainties. More specifically, renewed political and geopolitical uncertainty, a fourth (and in some countries fifth) wave of Covid-19, moderating global economic growth, and a U.S. Federal Reserve that appears to be on the verge of fine tuning its ultra-accommodative approach to monetary policy. We offer some brief thoughts on the latter three issues that remain central to the investment outlook.

The general economy continues to learn how to function amidst a pandemic that is nearly 1.5 years old. That’s not to say things are back to normal, particularly for some pockets of the economy. But, consumers, households, and many businesses have figured out how to make do, for the most part. Vaccinations have helped too. And while new cases are rising across many jurisdictions, the impact on hospitalizations and the economies of many countries has become less pronounced with each successive wave of the virus. As a result, markets aren’t as fussed as they once were and that trend may continue barring any meaningful change in transmissibility and morbidity.

Economic growth in recent months has begun to slow. Undoubtedly, part of this is driven by new waves of the virus, but much of the slowing has to do with a reversion that was inevitable. The slowing explains the recent weakness of late in some pockets of the global markets such as commodities, cyclical sectors, and even currencies like the Canadian dollar. Growth bounced back so strongly last year as a result of the reopening, pent up demand, excess savings, and government support, but the pace was always destined to fade to something more normal. The question is whether growth is simply levelling off to a more sustainable level or whether the slowing could turn into something more prominent. The former may be more likely based on recent economic data points and other factors. Furthermore, the global economy has yet to reach its full potential and could do so should the pandemic eventually turn into something milder, or even end completely over the next year. So, there is still room for improvement.

One of the primary supports that has been in place for the global economy and markets has been the central banks. This is particularly true in the U.S. where the Federal Reserve has emphasized it would do whatever it could within its means to ensure a functioning credit market and sustainable economic recovery. This includes a program by which they purchase billions of dollars of bonds every month to keep bond yields, and the cost of financing, relatively low. The Federal Reserve is likely to modify this program in the not too distant future given the progress made since last year. Regardless of timing, a change is in order, and it will mark the beginning of a gradual unwind of its stimulus. While noteworthy, it does not suggest the conditions that have been so supportive to the recovery are set to deteriorate. Moreover, any interest rate hikes still remain well more than a year away. In other words, the transition from accommodative to more restrictive monetary policy is more likely to take a few years to unfold.

The aforementioned issues have all bubbled to the surface in recent months. Yet, they haven’t deterred global equity markets, with many still sitting near their highs. The outlook remains constructive given the diminishing impact from the virus, an economy that should continue to grow at a reasonable pace, and a monetary policy backdrop that remains very supportive. As investors we are temper expectations. The sharp market rebound since last year combined with valuations that are generally above average suggest forward looking return potential, while still reasonable, may be more moderate in the back half of the year, although, as always, we continue to find opportunity amid uncertainty.

As we transition from summer months and cruise into what could be a particularly stormy fall, remember what surfing icon Jon Foreman once said, “When life hands you lemons, you make lemonade. But when life hands you hurricanes, you go surfing.”

There is no better time than now to define your goals, seek out your passions and go find your 100 foot wave.

Be well & enjoy the moments

Derek

“As hard as you try, as many places as you travel, and as many waves as you have the honor to feel beneath your heels, it will inevitable only deepen the desire to seek out more” Bethany Hamilton