Investment Environment - Fall 2018

Oct 29, 2018 | Mark Lloyd


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My emphasis on Canadian firms that get much of their revenues from U.S. businesses has helped our Canadian holdings to keep pace. Meanwhile, the sudden and welcome resolution of the NAFTA standoff bodes well for Canada going forward.

Financial markets ended Q3 on a high note as U.S. consumer confidence was the best it’s been since 2000, and U.S. initial jobless claims came in at the lowest level since the year I was born (1969). Everyone in the world seems to want to own U.S. dollars and U.S. stocks. The Trump tax cuts are the immediate cause for most of the good cheer down south. Even though Canadian stock prices pale in comparison, my emphasis on Canadian firms that get much of their revenues from U.S. businesses has helped our Canadian holdings to keep pace. Meanwhile, the sudden and welcome resolution of the NAFTA standoff bodes well for Canada going forward.

No sooner was all of this good news delivered before a chilly October selloff arrived to remind us just how fickle market sentiment can be. People will continue to greet every such selloff with fear that a long overdue market correction has arrived. That fear will continue until such a correction really does arrive. My guess (which is just one man’s guess) is that a meaningful correction will not occur until corporate profit estimates turn negative with deteriorating economic fundamentals.

But sooner or later an abrupt and significant markdown in asset values will surely occur. That selloff will be an opportunity for some well-positioned investors to accumulate equities at lower prices. More importantly, it should not be an occasion for any well-positioned investors to sell equities at marked-down prices. Instead, we plan to bide our time and collect our dividends.

Mark Lloyd, Ph.D.

Vice President & Portfolio Manager

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