Uncertainty and nervousness prevail.  Hang tight.

 

Hang onto your hats for a bit here as it might get a touch bumpy.  USA markets sold off yesterday to the tune of 3% and is recovering 1.6% today at the time of writing this.  Canada is down 1% today as markets reopen after the long weekend.

 

So what happened?  There were a number of factors that led to investors getting nervous and moving to the sidelines.

 

The USA unemployment report last Friday was stronger than expected with unemployment coming in at 4.3% versus 4.1% expected.  Concern mounted that the USA was going into recession and the Federal Reserve was behind the curve again with cuts to interest rates and navigating a soft landing.  The Feds came out today with a statement reaffirming their belief that the USA economy was in good shape and that a recession was unlikely.  Expectations for a 50 basis point rate cut increased to 70%+ for the September meeting.

 

The Japanese central bank raised rates last week by a quarter point unexpectedly.  This caused a shock through the markets and caused a 12% drop on Monday with a subsequent 10% increase today (Tuesday).  Waking up to the news on Monday did not help the global stock markets.  The drop was essentially due to the unwinding of the carry trade.  This is a strategy where investors borrow in low interest rate countries and invest in other areas of the global markets.  As borrowing costs went up in Japan, the carry trade was no longer viable and needed to be unwound, causing the markets to drop.  This may continue to play out further in the days to come as this trade is massive in size and not easy to unwind in one day.

 

Global markets, especially in the USA, have had a good run this year and investors were already nervous as to lofty valuations.  Any nervousness was likely to lead to profit taking.

 

Global markets are on the rebound today and cooler heads are prevailing.  Client portfolios have done well so far this year and are up solid overall.  We gave up a little of that growth yesterday to the tune of perhaps 1 to 1.5%.  We remain balanced in our portfolios across asset classes, market sectors, and regions.  We also like the companies we are invested in.  We still believe that global central banks are navigating the soft landing scenario at this time and markets should continue to benefit from that.

 

Hang tight.  No need to panic.  We are watching and evaluating the situation as it unfolds.

 

If you have any concerns, please reach out to us for some reassurance.

 

Kind regards,

 

Miles for Leanne, Jennifer and Paula