Correction vs downturn

Dec 18, 2018 | Jeremy Goldfarb


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It is the position of the Global Portfolio Advisory Committee with RBC Wealth Management that we are in a state of correction, and not prolonged downturn. I tend to agree with this assessment, but thought I would provide you with some reasons why.

 

1- For the S&P the range of 14x to 16x current earnings has historically been something of a “sweet spot” for stocks, with the S&P 500 typically delivering all-in returns close to 15% one year out, on average.

2- none of the major recession indicators at this point are flashing red. Employment, economic growth, consumer sentiment all still in positive territory.

3- The challenges presented today are somewhat transitory. Tarriffs, US government pressure, all can be remedied by reasonable thought and discussion. The growth drivers and underlying fundamentals are strong provided these roadblocks are removed, which I feel they will be.

 

Now, despite challenges here in Canada, it's tough not to recognize the valuation gap that exists here. The opportunity for additional alpha is even more pronounced, however I would not be in a rush to amp up position sizes here.

 

Remember....when there is blood in the streets. Click here for a report from RBC