2016 had lots of twists and turns – but turned-out well!
2016 started off with a bang as the S&P 500 declined 4.9% in its first four trading days, the worst start to a year in history. On January 12, 2016, global bank RBS warned that 2016 would be a “cataclysmic year” and advised their clients to “sell everything except high quality bonds” predicting slumps in capital markets and oil. While the RBS attracted attention and exacerbated worries, as you can see below, it was far from the mark!
|December ’16||1 year||3 year||5 year||10 year|
|S&P/TSX Composite||+ 1.36%||+ 17.51%||+ 3.92%/yr.||+ 5.04%/yr.||+ 1.71%/yr.|
|S&P 500 (C$)||+ 2.13%||+ 6.54%||+ 15.30%/yr.||+ 18.69%/yr.||+ 6.18%/yr.|
|MSCI EAFE (C$)||+ 3.65%||– 4.56%||+ 3.62%/yr.||+ 9.54%/yr.||+ 0.65%/yr.|
* Source: Equity Index and Currency Data: Bloomberg. Data as of December 30, 2016
Unlike his predecessors, President-elect Trump isn’t guided by ideology from the religious right as Bush was, or the socialist left as Obama was. In fact he has long identified himself as a Democrat and has supported Democratic candidates including Hillary Clinton. It appears the U.S. political pendulum is swinging back to centre, and with a majority in the House and Senate, he has the opportunity to make significant progress on his initiatives.
Recession risks remain muted over the next couple of years. In 2017, I expect that many international markets will see a year of improving fundamentals, but increasing risk (from the European elections in France and Germany and a potentially more protectionist U.S. trade policy). The pace of positive gains in consumer spending, employment, business confidence, manufacturing activity and auto sales has resulted in the first upward economic forecast revisions in three years. Scotiabank expects global GDP to rise from 3.1% to 3.4% in 2017 and 2018.
In a recent report, our Global Portfolio Advisory Group commented on the equity markets as follows: “There is a fear that equity markets have moved too far too fast, leading some to wait on the sidelines with existing money looking for a pull back. We are of the opposite opinion and choose to be fully invested. Our bullishness is prefaced with the belief that any pullback will be shallow in nature.
Although there are plenty of risks to keep investors nervous, we believe these fears will provide the backdrop for a rising bull market that climbs the proverbial wall of worry. The simple truth is investing has always been worrisome and that is why it compensates investors with a risk premium for accepting that risk. In a nutshell – no worries equals no returns at best.
We remain confident that there is more upside left as the largest asset allocators (i.e. pension funds) traditionally are the slowest to rotate to a new economic reality due to their use of investment committees and consultants at quarterly scheduled meetings. This slow moving process has only begun in our opinion and they have plenty of work to accomplish.”
Our Global Portfolio Advisory Group’s Top 10 picks for 2017 – both Canada and the U.S. – have been posted to our website in the Financial Library section. You will note that there is a significant tilt toward these three major factors they see for 2017:
- The Trump Fiscal Spend (which will have significant impacts on infrastructure and defense companies)
- Rising (U.S.) Interest Rates (which will benefit the insurance and banking sectors)
- A General Cyclical Rise (which will benefit hardware technology, energy and chemicals)
TFSAs: The limit remains $5,500 for 2017 and $52,000 cumulatively since 2009. Contributions can be made by mailing a cheque, setting up your TFSA as a bill payee in your online banking, or having us do an internal transfer from your non-registered account.
RRSPs: The maximum contribution for 2016 is $25,370 and for 2017 has increased to $26,010.
March 1, 2017 is the deadline to apply your RRSP contribution to your 2016 tax return filing. (Your limit can be found on your Notice of Assessment that Canada Revenue Agency (CRA) sends after processing a tax return. It also includes any unused room. The Tax Information Phone Systems (TIPS) also gives current contribution limit – Toll Free Number 1.800.267.6999, SIN and previous year’s tax return must be handy. In addition, the new “My Account” online service on the CRA website can be used to check your RRSP deduction limit for 2016. My Account lets you get personalized information about your RRSP contributions and deduction limits as well as information about payments, instalments, outstanding balances, statements of accounts and much more.)
I wish you a happy and prosperous 2017. Actively managed diversified portfolios that speak to your financial plan should provide attractive returns in 2017.
Mailey Rogers Group is here to help and we welcome any questions you may have.
Senior Wealth Advisor
Director, Wealth Management
Mailey Rogers Group