The last of summer continued to be very warm in August, yet relatively dull on the markets. Both Canadian and U.S. markets did have another positive outcome for the month as we continued to have earnings come in. The tariff news is starting to have a lesser effect on the daily moves in our markets as the general consensus looks like an eventual 15% tariff being priced in. The pressure on the Federal Reserve to lower rates remains and it does look like we may see some interest rates being reduced in September at the next Federal Reserve meeting.
In Canada, we continue to grind higher which is impressive with all the negative news we are subject to from our largest neighbour. We have had a good number of companies that have been reporting decent earnings and even though guidance is cautious it is still relatively positive. I do believe we are close to getting some sort of a deal done as the noise around this has been quiet for quite a while. The financials have just finished up on earnings and they have been very strong, the guidance to increase loan losses going forward are not outrageous which is another positive for the economy. The economy has been stable in Canada, but a lot of capital projects have been put on hold until the tariff issue gets resolved so that will be a drag going forward and I would expect the Bank of Canada to look to lower rates going forward.
In the U.S., the headlines continue, and the shock and awe statements remain, but it seems the market is looking through all the noise. Manufacturing is growing in the U.S. and this trend is looking to continue with the number of incentives for companies to relocate and build in the U.S. The current growth areas in data centers, AI, and cybersecurity remain very strong and I do not see this story changing any time soon. The big news coming in September is if the Federal Reserve cuts its rates. The bond market has telegraphed this for quite a while that it has room to cut rates. The dilemma for the Fed is that the economy is strong enough to keep rates high to control inflation. The markets currently are not running on the need for rate cuts however the big benefactor to a rate cut is housing. The housing market on both sides of the border is the weak area that does need help, and we have been positioning our portfolios into this area as it is long overdue for a recovery.
European markets have been strong as I believe the anti US trade has been helping this area, but the limited growth potential has kept us with a lower weighting in Europe, and we see better alternatives closer to home. In regard to China, here again I have been staying away from this country as we see the trend of goods coming from China declining, and this could go on for a long time.
September always comes with a potential for a market change as holidays end, children go back to school, and the big investors come back to get serious on their portfolios. We sit at all-time highs and the risks of a pullback have increased. Now, a small pullback which is normal, and not the death nail correction that some would expect. We have built up some nice cash (money market) positions to take advantage of any pullback we get as I do not see a major trend change happening with all of the above ingredients of a good economy still in place.