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The markets in October have been spooked (I swear, my last Hallowe’en reference). Though the markets look strongly positive today, in the 30 days of October so far, the Toronto Stock Exchange Index is down 7.3% and the US S&P 500 is down 7.9%. Global stocks haven’t fared any better, with the MSCI All-Country World IMI falling 9.0%. The question on everybody’s mind is, is this the harbinger of a new recession?
Our answer, broadly, is no. As we’ve reiterated in past missives, the economy—both in North American and globally—is strong. All signs point to continued global growth. A number of specific risks that we were watching have abated: the US didn’t pull out of NAFTA, signing instead the US-Mexico-Canada Agreement that was largely the same as the old pact; Brexit looks to be leaning more and more towards a “soft” Brexit; regional issues in Europe seem less painful than they did earlier. This isn’t to say that risks don’t remain, Chinese growth in the face of trade tariffs and Angela Merkel’s announced departure as Chancellor (though not until 2021) are key issues to watch. Looming above all of this is the coming US mid-term elections on Tuesday. We believe that some of the recent decline in markets is the combination of a fair bit of “altitude sickness” conspiring with the general volatility that significant policy junctures like elections bring.
Investors who took gains in the run-up in the first half of the year, with cash in their portfolios (or, indeed, bank accounts) should be pleased with the current state of things. The economy looks strong, but markets are weak. Those earlier gains were crystallised and the proceeds can now be used to buy the same types of good companies—or ones that were always too expensive—for (likely) cheaper than they could be bought in August. As the publisher William Feather once said, “One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.”
Below, I have included a link to the latest “Global Insight Weekly” publication from RBC, which broadly echoes my sentiments above.
Have a great Hallowe’en!