Climbing the Proverbial Wall of Worry, Markets Hit New Highs
As the news cycle spins faster and faster we hope you are able to “unplug” and enjoy the spectacular fall colours. Heading into the final months of the year, the US stock market has hit new all-time highs as investors ultimately found reasons for optimism in moderate inflation, generally positive corporate earnings reports and supportive business conditions.
Many of the main themes that have affected global asset markets in 2019 – including U.S.-China trade tensions, political uncertainty due to the Brexit negotiations, and slowing economic activity continued in the third quarter, resulting in somewhat choppy market performance. Trade disputes have been an ongoing soap opera throughout the year, at times making investors feel as if they were trapped in an episode of “Deal or No Deal”. Yet even here there have been positive signs of progress. Combined with a still strong US consumer who continues to spend and who accounts for 70% of US GDP, most markets around the world enjoyed positive returns in the third quarter
Market Returns
After reaching a new high in the prior quarter, the U.S. equity market fell sharply near the end of July and remained volatile over the next several weeks before climbing higher again. The S&P 500 Index, an index of the 500 largest U.S. publicly traded companies, finished the period up 3.0% and with a gain of 16.9% for the year-to-date in Canadian dollar terms. The U.S. market rally has been broad-based in 2019, with particularly strong results for companies in the information technology, healthcare, utilities and real estate sectors.
In Canada, the S&P/TSX Composite Index also weakened in late July, but bounced back to reach a record high late in the quarter, with a rally that was fueled by companies in the financials and consumer staples sectors. The Canadian benchmark gained nearly 2.5% for the quarter, and was one of the best-performing equity markets globally with a year-to-date gain of 19.1%.
Performance for the MSCI EAFE Index, which captures performance for large and mid-cap companies in 21 developed markets across Europe and Asia, was more muted. The index rose slightly by 0.3% in Canadian dollars for the third quarter, bringing its year-to-date gain to 9.9%.
Fixed Income
With global growth slowing, the expectation of rate cuts by leading central banks led government bond yields lower and prices higher through much of the three-month period. The U.S. Federal Reserve cut its policy rate twice in the third quarter – once in July and again in September – citing risks including trade tensions and slowing growth overseas. The European Central Bank responded to slower economic growth by taking its key lending rate into negative territory and re-starting its bond purchase program to ease credit conditions. The Bank of Canada, however, bucked the trend, pointing to a strong economy for maintaining its overnight lending rate at 1.75%. The FTSE Canada Universe Bond Index, a broad measure of Canadian government and corporate bonds, returned 1.2% for the quarter and 7.8% for the year-to-date.
Market Outlook
Looking ahead, global growth is expected to continue, albeit at a slower pace than we have seen recently, while the risks stemming from trade disputes and political upheaval could continue to affect global economies and markets. Slower growth also means these cross winds and turbulence have a bigger impact than in high growth periods. At these times, it’s worth bearing in mind that markets rarely move forward without temporary corrections or bouts of volatility, as occurred in July. We continue to believe that a diversified portfolio that clearly keeps in mind your long term goals and suited to your time horizon and tolerance for risk remains the best path forward. Our portfolio continues to focus on being well-diversified and conservatively positioned with an emphasis on investments that have strong earnings and a track record of shareholder- friendly actions such as a growing dividend.
Should you have any questions regarding your portfolio, please do not hesitate to contact our office.
Gallivan Wealth Management in the Community:
Mark (right), Sarah Bertrand (middle) and Sarah’s sister, Becky (left) stepped out to support Soiree Salus on October 3rd in support of community mental health services at the French Embassy. Ottawa Salus provides affordable, supportive house and programming for people living with serious mental illness. Sarah sits on the Ottawa Salus Board of Directors as the Treasurer and board member. Thanks to amazing support from the community, Ottawa Salus was able to raise $165,000.
