The U.S. electorate has voted for change. What will they get? At the time of writing, the President-elect is still choosing his key advisors and posts. So far, the market’s reaction has been very positive. His promise to lower corporate tax rates (below their position of already being the lowest in the developed world) is projected to increase corporate profits and therefore their share prices. There is clearly a lot to still unfold, so stay tuned!
The U.S. continues to show great strength. There is continued improvement in the labour market, and the manufacturing sector is strengthening – especially with the President-elect’s stance on establishing more barriers for imports into the U.S. The third quarter GDP in the U.S. was recently revised upward and consumer confidence is strong. Current market indications are that there is a 100% chance of a U.S. interest rate increase when the next announcement is made on December 14.
|November ’16||Y-T-D||1 year||3 year||5 year||10 year|
|S&P/TSX Composite||+ 2.042%||+ 15.93%||+ 11.98%||+ 3.44%/yr.||+ 3.83%/yr.||+1.82%/yr.|
|S&P 500 (C$)||+ 3.45%||+ 4.32%||+ 4.82%||+ 15.87%/yr.||+ 19.97%/yr.||+ 6.31%/yr.|
|MSCI EAFE (C$)||– 2.14%||– 7.92%||– 3.61%||+ 4.46%/yr.||+ 8.32%/yr.||+ 0.16%/yr.|
The President-elect’s policies cause us to believe that the U.S. dollar will continue to strengthen versus most world currencies, including Canada’s. It is likely the economic stimulus caused by these policies will be inflationary. As a result, the Scotia economic forecast has changed from two more small interest rate increases by the U.S. Fed in 2017 to three.
We are now into our seventh year of the current bull market and I believe it is likely to continue. While many of the factors that impact this view were already in place before the election, the pro-growth agenda of the incoming administration pushes the timing of the next recession out at least two years.
This remains the favoured asset class. The current policies outlined by the new administration favour the sectors such as energy, materials, financials, and industrials. However, it is expected that the over-owned defensive sectors such as telecommunications and utilities could suffer. With U.S trade policy leaning toward being isolationist, I prefer North America over the rest of the world. Having said that, Europe is continuing to make economic progress despite the many issues that union is facing.
This is the asset class most at risk of declining values. Generational lows in both interest rates and inflation I believe are behind us. This makes overweight positions in what one may perceive to be a safe holding, actually being the most vulnerable to losses over the medium term.
The most recent OPEC decision has boosted the price of oil to above $50 per barrel. I anticipate that this could increase to $60 by the end of 2017 and $65 two years out.
I expect that actively managed and rebalanced global pension portfolios such as Summit, Pinnacle and Russell will provide more consistent returns for investors. Geographic diversification will smooth the volatility of being too focused on the U.S. and the twists and turns expected as Donald Trump implements his policies. These portfolios will also benefit from the expected currency changes of the strengthening U.S. dollar.
Thank you to those that were able attend our November 23 presentation at the Kay Meek Center for the Performing Arts on the topic of investing in real estate. It was well attended and obviously topical. The discussion encouraged homeowners to look at this as a lifestyle decision – not necessarily the best performing investment decision. Owning a home is like owning an asset with a negative dividend. We discussed how to quantify the cost of living in your home and would be more than happy to share the details to help you make this calculation for your own situation. Our guest speaker enlightened us on investing in real estate through financial securities and just how successful his strategy has been.
I would like to encourage you to look through our brand new website. It has been refreshed to size your view whether you are viewing it on a cellular phone, tablet, or traditional computer. The site has more information and it is updated daily. Consider bookmarking our website because it provides a convenient link directly to Scotia On-Line to view your accounts. Please consider “liking” us on Facebook, Twitter and LinkedIn.
In closing, I would like to wish the readers of my Market Update and Outlook an enjoyable and peaceful year-end holiday season and, of course, wish you a prosperous 2017!
Senior Wealth Advisor
Director, Wealth Management
Mailey Rogers Group