Good morning,

The sharp two day market selloff (February 2^nd & 5^th) has pushed stocks closer to a correction. The Dow & S&P 500 are off 8.5% and 7.8% from their highs, respectively. A correction is a defined as a 10%+ decline from recent highs.

We have attached a market brief published this morning from RBC Dominion Securities along with a link to a webcast below from our Chief Economist Eric Lascelles.

In summary here are a few key points that we distributed February 5^th, 2018.

Economic fundamentals remain strong worldwide and analysts are reaffirming that nothing has changed fundamentally. The cause appears to be related to these three major data points from last week:

• The US economy is very healthy with Friday’s job reports showing that wages grew at the fastest pace since 2009. The US is approaching full employment.
• Corporate profits have been quite strong as of late with the full results of US tax reform to come in future quarters.
• The Atlanta Federal Reserve forecasts 5.4% GDP growth in the first quarter, after experiencing years of growth closer to 2-3%. This is much higher than previous forecasts.

These three points are very positive but have caused the following concerns:

1. Faster than expected GDP growth may cause interest rates to rise faster than expected.
    
2. Wage growth is seen as inflationary. Rising inflation could also cause the Federal Reserve to raise interest rates much more quickly than anticipated.
    
3. Rising wages could also eat into record-high corporate profits.

A pullback is long overdue as US markets remain up almost 40% since President Trump’s election. This isn’t necessarily a bad thing as it keeps stocks from overheating and it is normal to see a pullback. Normally markets experience a correction every 12-18 months.

Since we have seen an extended period without a correction we raised 5-7% cash in our discretionary Canadian and US models earlier this month. We remain constructive on equities and markets overall. We are confident with the quality of our positions.

Warm regards,

Rhonda Hymers, CIWM, CIM, FCSI, FEA
Director, Vice President, Portfolio Manager & Wealth Advisor