The US expansion is now officially the longest on record
While there is plenty to fret about when taking in the day’s news, the markets now seem accustomed to the way the story and threats ultimately unfold. I believe the current expansion will continue its upward course more slowly than other expansions but with a positive sign attached to it. This year’s current pace of growth is most likely unsustainable.
|April ’19||Year to date||1 Year||3 year||5 year||10 year|
|S&P/TSX Composite||+ 2.97%||+ 15.76%||+ 6.23%||+ 5.92%/yr.||+ 2.50%/yr.||+ 5.92%/yr.|
|S&P 500 (C$)||+ 4.27%||+ 15.67%||+ 16.33%||+ 15.06%/yr.||+ 13.88%/yr.||+ 14.23%/yr.|
|S&P 500 (U$)||+ 3.93%||+ 17.51%||+ 11.25%||+ 12.57%/yr.||+ 9.35%/yr.||+ 12.94%/yr.|
|MSCI EAFE (C$)||+ 1.79%||+ 9.98%||– 1.68%||+ 6.62%/yr.||+ 3.97%/yr.||+ 6.15%/yr.|
*Source: Equity Index and Currency Data: Bloomberg Data as of April 30, 2019
The consequences of uncertainty
It is clear that the Brexit vote and the ensuing failure to achieve an agreement have created a powerful, persistent uncertainty shock that is growing. As of this writing, the UK has not yet arrived at a customs agreement, and there remains the very real possibility that it could “crash out” of the European Union without any trade agreements in place. While the Article 50 extension granted by the European Union has temporarily averted a “crash out,” it has extended the period of extreme policy uncertainty, which is likely to continue to depress business investment.
As we look to the rest of 2019 and beyond, there are many question marks on the horizon. It is not just Brexit that is creating economic policy uncertainty for firms. The US’ trade war with China, as well as the possibility of US trade wars with the European Union and Japan is also creating uncertainty for businesses.
Scotia Wealth Management’s Global Portfolio Advisory Group believes a strong consumer and fading trade concerns could support modest growth acceleration later this year. Consumer spending has supported growth around the globe as tight labour markets, rising wages, modest inflation, and low borrowing costs ease some of the burden on consumer pocketbooks. Particularly surprising is the U.K. consumer, who continues to spend despite considerable Brexit uncertainty. We expect the U.K. and the E.U. will reach an agreement and avoid a no-deal exit.
Despite President Trump’s sporadic threatening tweets, the U.S. and China appear to be making significant progress toward a bilateral trade agreement. Other trade negotiations are ongoing (U.S.-E.U. and the U.S.-Mexico-Canada Agreement), but a positive resolution to the U.S.-China trade stand-off would likely be a significant shot in the arm for the global economy. The removal of tariffs and the resumption of the regular flow of goods between the two countries would improve investor confidence, alleviate strains on the global manufacturing sector and set the stage for improved global growth in the second half of the year.
Preparing for what lies ahead
The year-to-date mid-teens growth rate in North American stock markets is, I believe, unsustainable. It should be remembered however, more money has been lost preparing for a market correction than has been lost in a market correction. We do not try to time the market as we are likely to be wrong more than we are right. Listed below is a short checklist of matters we are in control of to ensure your investment portfolios reflect your time horizon, risk tolerance, liquidity and income needs.
- Have a plan. Review your upcoming liquidity needs and next three year’s ongoing income requirements. These funds should be extracted from the uncertainty of the ups and downs of the market – recognizing that the “price” of extracting them from the long-term likelihood of better returns is likely negative real rates of return (current guaranteed interest rates less taxes and inflation).
- Have an actively managed and properly diversified portfolio. This includes geographic, industry and capitalization diversification.
- Have an appropriate weighting in non-correlated investments (alternative strategies). Alternative strategies provide enhance diversification and help to protect your capital in negative markets.
- Try to “block-out the noise”. Day-to-day fluctuations are not in your control. Once your portfolio has incorporated the matters listed above that are in your control you may feel much less anxiety.
Brad and I look forward to discussing your unique circumstances in an upcoming review or conversation.
We are here to help, let us know if we can.
Senior Wealth Advisor
Director, Wealth Management
Mailey Rogers Group