2019 Q3 Commentary

Oct 01, 2019 | Jon Mitchell


2019 Q3 Commentary

Jon Mitchell, Portfolio Manager


Second verse, same as the first – a little bit louder and a little bit worse.

I remember singing this crazy campfire song in my youth summer camp days, but it pretty much sums up the last three months since my last commentary. Take a look through the figures at the end of the report and take my word that they were pretty much the same as the second quarter.  Here are my bullet points for the past three months:

  • Canadian federal election. Liberal minority was indeed the projected outcome (over the last few days of the 40-day campaign). Expect the Trans Mountain Pipeline expansion to get built as Liberals and Conservatives will agree on this project. Also, expect higher deficits to persist throughout the life of this minority government, which tend to last 18 to 24 months. I expect Premiers Kenney and Moe to become even more active advocates for the energy sector, at the inter-governmental level and with Supreme Court challenges. 

  • The energy provinces (especially Alberta and Saskatchewan) continue to struggle with the lack of interest in their resources / pricing discounts that continue to result in lower investment and further job losses. 

  • USMCA trade deal is still in limbo in the U.S. Congress and they are running out of days to get this onto the floor for a vote. Canada and Mexico should ratify quickly once it is done in the U.S. Congress. 

  • The Bank of Canada will likely only lower interest rates once in the next 12 months, while the U.S. market is expecting two cuts of 0.25% over the next year. If this comes to fruition, Canadian short-term rates will be higher than US rates. This expectation has given our Canadian dollar a bit of a lift, just a bit higher than US$0.76. 

  • The third quarter saw a marked increase in negative-yielding government bonds (primarily European and Japanese), as the global total hit US$17 trillion. Meanwhile, back at the White House, President Trump tweets that if Europe has them, then the U.S. should have negative interest rates as well.  

  • U.S. 10-year Treasury Bond yields plummeted to 1.5% in early September (peaked at 2.14 % in mid-July). Similarly, the Canada 10-year bond touched 1.23%, after peaking at 1.6%. 

  • Brexit seems to be on again / off again, depending on the day or deadline. It looks like the latest extension is now set at January 31, 2020. 

  • Gold had another solid quarter, posting a 5.3% gain. With US$17 trillion in negative yielding government bonds, gold with a 0% yield is looking attractive on many levels. Its precious metals cousin, silver, had a wild run through early September, running up 30 % from June 30 and then selling off 13% by the end of the quarter. 

  • Trump impeachment hearings are dominating the U.S. airwaves. The Democrats face an uphill battle, given that they do not control the U.S. Senate, where the impeachment trial would require two thirds support of the Senate. 

  • Joe Biden’s frontrunner position for the Democratic nomination has been challenged in recent weeks by Senator Elizabeth Warren. 

  • The U.S. and China have reached a very limited trade agreement (on a short list of items) but are significantly away from the type of comprehensive trade agreement the markets will need to move forward on a convincing basis. 

  • Although North American economies have not yet entered a recession, we are approaching stall speed and the major indices are entering an earnings recession where year-over-year comparisons are beginning to roll over. 

  • Renee Zellweger, Charlize Theron and Scarlett Johansson will duke it out for Best Actress at the 2020 Academy Awards (just making sure you made it to the end of the commentary).

We remain more defensive with our portfolios with allocations to sectors such as utilities, consumer staples, telecommunications and REITs. Fixed income investing remains a challenge at this point of the cycle given very low yields in the higher-rated securities.  Building some additional cash reserves continues to be prudent given the level of uncertainty facing markets and major economie

Set out below is a table of the performance of various sectors of the market in the third quarter of 2019 and for the year-to-date results / three-year rolling periods:

Investment Index                

Q3 2019 Return

 2019 YTD Return

3-Year Compound Return

S&P/ TSX Composite Index




S&P 500 (Cdn Dollars)




Short Term Comp Bond Index




US$ / C$




Gold Bullion (C$)




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