Strong Economic Date Improves Market Tone
July saw global markets rally on the back of positive economic surprises, particularly amongst major economies such as China, Canada, the Eurozone and Emerging Markets. However, as the table below indicates, the almost 4% gain in the Canadian versus U.S, dollar negated this strength for investors viewing their returns in Canadian dollars.
|July ’17||Y-T-D||1 Year||3 year||5 year||10 year|
|S&P/TSX Composite||– 0.25%||– 0.94%||+ 3.85%||– 0.41%/yr.||+ 5.36%/yr.||+ 0.88%/yr.|
|S&P 500 (C$)||– 2.01%||+ 2.45%||+ 8.59%||+ 13.62%/yr.||+ 17.41%/yr.||+ 7.14/yr.|
|MSCI EAFE (C$)||– 1.13%||+ 6.79%||+ 9.56%||+ 4.73%/yr.||+ 10.90%/yr.||+ 0.20%/yr.|
* Source: Equity Index and Currency Data: Bloomberg. Data as of July 31, 2017
The loonie traded far above the $0.78 target Scotia Economics had forecast earlier this year. Our dollar traded above $0.80 toward the end of July. Markets are currently pricing in a further 0.5% increase in interest rates over the next year in Canada and only a 0.25% increase in the U.S. In the view of Scotia Wealth Management’s Global Portfolio Advisory Group (GPAG), the forecast is a bit optimistic for Canada and not optimistic enough for the U.S., leaving the Canadian dollar somewhat vulnerable. The Canadian currency still face concerns such as elevated consumer debt levels, an over-heated real estate market and volatile oil prices.
The broadening out of economic momentum beyond the U.S. into the rest of the world improves the resilience of the recovery cycle and has given investor confidence a shot in the arm. Earnings prospects remain bright and confidence among the central bankers to reduce current levels of monetary stimulus bolsters the case for equity outperformance. Given these indicators, GPAG suggests that the next recession is not likely to materialize until 2019 at the earliest and being overweight equities for the next 12 months is recommended.
With all of the second quarter results now in, 73% of companies beat their respective earnings estimates by an average of 7.6%. While the political situation in the U.S. continues to provide surprises almost every day, the underlying economy remains strong. With NAFTA negotiations about to begin, Canada’s Foreign Affairs Minister Chrystia Freeland noted “Canada is the top customer of the United States. Canada buys more goods from the U.S. than China, Japan and the U.K. combined.” The statement sent a clear message to negotiators that Canada knows its worth in the NAFTA landscape.
In summary, I believe that conservative actively managed and globally diversified portfolios will return at least mid-single digit returns over the next twelve months. Expected market pullbacks should be viewed as buying opportunities for long-term conservative investors.
Mailey Rogers Group is here to help and we welcome any questions you may have.
On a personal note, Victoria and I witnessed each of our children achieve great success in July.
Our son Brook was admitted to the UBC’s Peter A. Allard School of Law. So yes, he remains on “our payroll” for another three years, but we are so pleased and proud of him.
As I mentioned in last month’s update, we travelled to Plovdiv Bulgaria to cheer on our daughter Madison and Team Canada at the U23 World Rowing Championships! Madison’s boat accomplished a new world record time in their heat and won the gold medal in the final! If interested, there is a link to the actual race and our local newspapers article on the event.
We remain concerned for our clients and all residents impacted by this summer’s terrible forest fires. While in the Vancouver area we have had the blue skies of summer blocked by all the smoke for some time, we know it could be much worse.
We are here to help, so if you have any questions about the information presented in this update or any questions in general, please give us a call.
Senior Wealth Advisor
Director, Wealth Management
Mailey Rogers Group