December 2017 review and market outlook for 2018

Market commentary by Kim Mailey

January 4, 2018

The continued creep of “creative disruption” in 2018

In 2017 we witnessed many changes in how we shop, relax, store energy and think of money. They say change is the only constant, so we should expect more of the same in 2018 as well as AI (Artificial Intelligence) and robotics.

December ’17 1 Year 3 year 5 year 10 year
S&P/TSX Composite + 0.88% + 6.03% + 3.47% + 5.45%/yr. + 1.60%/yr.
S&P 500 (C$) – 1.94% + 11.22% + 11.88% + 18.74%/yr. + 8.69%/yr.
S&P 500 (U$) + 0.98% + 19.42% + 9.10% + 13.39%/yr. + 6.18%/yr.
MSCI EAFE (C$) + 1.42% + 13.42% + 7.61% + 9.99%/yr. + 1.41%/yr.

* Source: Equity Index and Currency Data: Bloomberg. Data as of December 29, 2017

While the internet has been around for about twenty years, people are still discovering how to use it. While many electronic, clothing and book retailers have faced their demise because of the internet, grocery retailers are trying to proactively adjust after Amazon’s 2017 purchase of Whole Foods.

Likewise, while many have cancelled their “land” line telephones in favour of just using their cellular numbers, many have started to cancel their cable subscriptions in favour of streaming their content over the internet – the pioneer in this area is of course Netflix.

The battery is not new, but how it is used is. While the most well-known electric car is Tesla, the same founder, Elon Musk, and his Powerwall are showing how wide spread the battery’s use will be. The use of batteries to store vast amounts of electricity made by solar and wind farms is starting to shutter gas and coal fired electricity generating plants while seeing the demand for lithium increase.

The newest word we are learning about is Blockchain technology. It is most commonly associated with the numerous headlines about cryptocurrencies, but its other uses include its use in the food industry, the real estate industry and the financial industry.

Artificial intelligence is in its early stages of creative destruction. Each of these changes (and the many I haven’t mentioned) will hopefully make our lives better but put many workers out of work while creating new jobs for others. The only constant is change and there will be many investment opportunities provided along the way.

2017 was a drama-free year for equities. The S&P 500 never saw so much as a 3% micro-correction for the year. While all of the developed markets had a positive return in their local currency for December, the Canadian Dollar’s 2.59% appreciation against the US Dollar in December turned Canadian investor’s returns for the portion of their portfolios investing outside of Canada slightly negative when adjusted for currency.

Regardless of your thoughts about who benefits most from the new tax bill that has been passed in the U.S., it is expected to benefit the bottom lines of most publicly traded companies and therefore their share prices. A growing and increasingly synchronous global economy, interest rates that do not compete with expected equity market returns and a benign inflation rate, result in a generally favourable view of equities over both cash and bonds for 2018. Consensus equity market return expectations for 2018 are a 6%-8% return in their local currency.

Scotia Wealth Management’s Global Portfolio Advisory Group has announced their Top Ten Picks for both Canada and the U.S. Let us know if you would like us to send you these reports.

Things to watch in 2018:

  • Unemployment rates in OECD countries is likely to hit a modern-day low
  • The U.S. Federal Reserve is likely to increase interest rates 3 times in 2018 ( ¼ of a percent per time)
  • If the “troubled” NAFTA negotiations go poorly, Canada’s rate increases may slow and depress the Dollar

2018 TFSA Contributions – CRA has confirmed that the maximum contribution for 2018 is $5,500 and since it is now January, your contributions can and should be made as soon as possible.

From all of us at Mailey Rogers Group, we wish you the very best in 2018!

Mr. Kim Mailey, CFP
Senior Wealth Advisor
Director, Wealth Management
Mailey Rogers Group
1555 Marine Drive,
West Vancouver
Tel: 604.913.7013
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