When it comes to investment markets, 2018 was a year that most people would like to forget. Most investors are seeing returns that were lower than average and maybe even negative for all of 2018. I would like to share some perspective with you, to explain why markets behaved as they did in 2018:
2018 was a year of moderate strength in the economies of Canada, the U.S. and most other countries around the world. Most developed countries experienced moderate growth in their GDP, moderate growth in corporate profits and moderate growth in employment and wages. That being said, there was a lot of uncertainty in 2018 around issues such as trade tensions between the U.S. and China, the U.S., Canada and Mexico (and between the U.S. and basically everyone else), and the fear of rising interest rates and an oncoming recession, among other things. 2018 was a very challenging year for investors because the foreign policy and rhetoric that came from the White House was so confrontational in style, that it created a huge gap between investor sentiment and the reality of economic fundamentals. In spite of all of the positive economic news, stock prices dropped throughout the year (especially in the last 3 months of the year), in anticipation of all of the worst possible outcomes coming to fruition. Our view at RBC is that these decreases in global stock and bond prices, and the fears that caused the selling have been overblown. We expect that stock and bond prices will rise again in coming months as it becomes apparent that the worst possible outcomes will reach better resolution than what has been feared. In fact, we feel that 2019 could be a very good year for investments because of the potential catching up that could happen in the markets. Even though markets have been in this so called bull market for almost 10 years, we do not think that it has ended yet. Historically, bull markets transition to bear markets when the economy enters a recession, and we don’t expect that to happen in 2019. Despite being cautiously optimistic about the year ahead, there remain some potential risks for global economies, which will probably cause the markets to continue to be volatile. Your advisor should be watching these developments closely, to be ready to recommend changes to your portfolio strategies should the need arise. Overall, I am optimistic that the upswing in the markets that has been with us since the beginning of the year will continue and that investors with the courage to stay invested in properly diversified portfolios will be rewarded with good returns in 2019.
If you have any questions about your own investment portfolio, I would be happy to meet with you to take a look at it and give you a second opinion on whether you are well-positioned for the markets that we are facing in 2019. Feel free to share this info with anyone who you think may find it helpful, and please don’t hesitate to contact me if there is anything that I can help you with. All the best to you and your family in 2019.