July was similar to the last few years; slow and uneventful. The same storyline continues with trade issues dragging on. We have issues with Iran holding up oil in the Strait of Hormuz and the President basking the Federal Reserve. Canada has basically been a flat line and you would never know we have an election about to happen in the fall. I do not expect the same doldrums for the month of August. We will have earnings wrapping up in the first week of August with the majority of companies reporting then. Earnings have been very good thus far, however the uncertainty in future guidance has the market in this short-term holding pattern until the above issues get resolved.
The Federal Reserve did decide at the July month-end meeting to reduce the interest rate by one quarter of one percent, however, the rate cut was not done because the U.S. economy is weakening. We have a global economy being manipulated by the Central Banks and the U.S. has the highest interest rates in the world. At this time, it is prudent for the Federal Reserve to lower rates to bring things back in line. We continue to have slow growth in a low-inflation environment.
Britain has a new leader and we shall see how this other long drawn out trade deal called Brexit plays out. The short term of this delay has truly put a drag on Britain and the European economy. The other drag on the world economy is the continual slowdown in China. Clearly, the U.S. tariffs are hurting China worse than the U.S. We shall see who breaks down first, but the U.S. remains in a strong position to hold out further.
Overall, I remain a little cautious and, like every August, with little or no economic news coming the market can react. I expect the reaction to be negative and we are positioned to take advantage of the pullbacks of solid companies.
Paul Belous, CIM
Vice-President & Portfolio Manager