Hello,

 

Investors had to digest more than holiday meals around the dinner table in late December, as financial markets were hit by a whack of developments. The typically quiet period was anything but, with volatility similar to the February 2018 selloff. The S&P 500 recorded its worst December since 1931 to finish the year down -7.0%. Other global markets followed suit, with the TSX down -12.3%.

 

The bumpy ride for investors was based on growing fears of a global growth slowdown and uncertainty persisting around U.S.-China trade developments. A flattening of U.S. Treasury yield curve—the difference between long-term and short-term Treasury rates—increased recessionary concerns. The added headache of the U.S. government shutdown that began on December 22nd only aggravated nervous investor sentiment. However, the main catalyst for the late December sell off across equity markets appeared to be the Fed veering off the course of market expectations which triggered a selloff in equities.

 

Financial markets are receiving a boost to start the year, bouncing off of the December lows with the S&P 500 posting its longest rally since November. Renewed U.S.-China trade optimism is supporting risk appetite, while an expressed willingness of central banks to be flexible to market conditions is providing further relief. Notably, the Fed dialing back its earlier hawkish tone is helping to reduce market fears.

 

Cautious optimism that the long-term bull market will remain intact appears to be legit. For one, the year-end corrections produced much more attractive valuations in the U.S., with even greater value being unlocked in Canada, Europe, the U.K., and Japan. On the growth front, U.S. recessionary indicators appear largely contained and we believe the global economic expansion looks poised to persist despite momentum easing.

 

For now, we will keep calm and cautiously carry on.

 

Tim