2018 Federal Budget

March 2018

February 28, 2018

On February 27, 2018, Finance Minister Bill Morneau delivered the Liberal government’s 2018 Federal Budget. The budget estimates deficits of $19.4 billion for 2017-2018, $18.1 billion for 2018-2019 and $17.5 billion for 2019-2020. This commentary provides a summary of the tax measures proposed in the budget.

This Budget contained good news for corporations and individuals with no increases to income tax rates, a softening of the proposals related to private corporations, and some minor enhancements to the Medical Expense Tax Credit and the Canada Workers Benefit (formerly known as the Working Income Tax Benefit).

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Cyclical investment strategy recommendation remains intact

Here's what we're thinking

February 27, 2018

The spike in market volatility experienced in early February started to fade over the past couple of weeks and major stock indices have retraced 50% or more of their recent pullback. Given market volatility consistently remained at very low levels for an unusually long stretch (18 months) until late-January, we believe market positioning became unbalanced over the past year-and-a-half, leading to the sudden 10% correction a few weeks ago. However, we see this weakness as transient, set against a strong medium-term outlook for market fundamentals. In particular, economic growth momentum remains solid with economic data continuing to beat economists’ forecasts, leading to growth forecast upgrades for this year and next.

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Thoughts on recent market volatility

Global Portfolio Advisory Group

February 6, 2018

Following a sharp rise in the year-to-January 26th (7.5%), equity markets have witnessed an extraordinary rise in volatility over the past few trading sessions leaving most major indices down 1%-5% on a year-to-date basis. From its recent highs, the S&P500 index has dropped 7.8% on an intraday basis. The past few months have been characterized by steadily rising markets with few notable losing sessions and unusually low volatility. Typically, equity markets experience one or two corrections of at least 5% per year as witnessed in the period 2012 to 2016 (see Chart 1). However, up until late January 2018 the S&P500 index had not experienced a correction exceeding 6% since mid-2016. Moreover, a double-digit percentage drawdown last appeared two years ago in December-2015/early-2016 (-12.9%). Thus, the sharp rise in volatility and rapid correction in global markets witnessed in the past few days has followed a very long stretch of unusually low volatility and a lack of profit-taking-driven selling. As volatility spiked in recent days, many investment managers found themselves in need of unwinding large investments (and/or short positions) leveraged on the view that the unusually low volatility environment of the past few months would continue, which significantly added to selling pressure in global markets over the past 24 hours.

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Global markets continue to reach new highs on solid fundamentals

Here's what we're thinking

January 30, 2018

Global markets are off to an impressive start to the year with the S&P500 index posting a 6.2% year-to-date gain while the S&P/TSX Composite index is up 1% in the same period (local currency terms). Meanwhile, WTI crude oil prices have climbed 6.7%, gold is 2.7% higher, and the Canadian dollar has appreciated 1% thus far in 2018. In large part, these gains are driven by strong and improving fundamental drivers including accelerating global economic growth, stable inflation, gently rising interest rates and bond yields, recovering commodity prices, a softer U.S. dollar, and healthy earnings growth.

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