Markets reach new highs on improving fundamentals
Global equities, commodities and bond yields trended higher over the past month on encouraging economic data and earnings reports. In particular, manufacturing surveys, GDP data and labour market numbers have remained consistent with the solid pace of economic activity that continues to trigger ongoing upward revisions to growth forecasts.
|October ’17||Y-T-D||1 Year||3 year||5 year||10 year|
|S&P/TSX Composite||+ 2.50%||+ 4.83%||+ 8.37%||+ 3.12%/yr.||+ 5.22%/yr.||+ 0.92%/yr.|
|S&P 500 (C$)||+ 5.60%||+ 10.30%||+ 16.53%||+ 13.43%/yr.||+ 18.66%/yr.||+ 8.48/yr.|
|S&P 500 (U$)||+ 2.22%||+ 15.03%||+ 21.12%||+ 8.47%/yr.||+ 12.77%/yr.||+ 5.21/yr.|
|MSCI EAFE (C$)||+ 4.81%||+ 14.03%||+ 15.66%||+ 7.99%/yr.||+ 11.16%/yr.||+ 1.30%/yr.|
* Source: Equity Index and Currency Data: Bloomberg. Data as of October 31, 2017
Despite solid fundamentals, the markets have a litany of event risk to manage through over the coming weeks including; awaiting U.S. President Trump’s nomination of the next Chairperson of the Federal Reserve, Congress introducing a long-awaited tax reform proposal (talk of phasing in corporate tax cuts has weighed on equities recently), a possible ramping up of NAFTA headline risk heading into early 2018 as termination threats linger, etc. Central banks will likely figure prominently as well, with the Fed likely to affirm its intention to hike rates in December while the odds of the Bank of Canada doing the same look to be diminishing following a recent string of weaker data. My long-held strategy of overweighting equities/underweighting bonds has proven beneficial and as economic fundamentals look to remain solid, recession risks for the coming 12 months are quite low.
Some price consolidation remains possible in the mid-November timeframe but otherwise global equity markets are poised to close the year higher. Pullbacks would provide an opportunity to add to high quality growth candidates and I believe that if there was a pullback it would be in the single digit magnitude, potentially disappointing investors who are currently underweight equities.
As predicted, the Canadian dollar has come off its September 8th peak of $0.8291 to $0.7769. The short term negative effect of our dollar’s strength for international portfolio valuations has been neutralized. This week’s weaker GDP report has pushed the likelihood of a Canadian rate increase into 2018 from December 2017. The consensus expectation is that the U.S. is likely to have one more increase in their interest rates at year end.
With global economic growth broadening out across the globe, unemployment rates continuing to fall, monetary and fiscal policy remaining supportive, commodity prices recovering, and consumer and business confidence riding multi-year highs, we expect economic fundamentals to provide ongoing tailwinds for global equity markets over coming months.
Did you know?
- Exchange traded funds (ETFs) continue to get a lot of press for their perceived low costs. Did you know that of the 100 ETFs on the iShares website, that only 19 were less expensive than ScotiaMcLeod’s actively managed portfolio of segregated holdings called Scotia Investment Portfolios? The Canadian Dividend mandate, for example is a segregated portfolio of Canadian dividend paying securities that give the client active management, the ability to do tax loss selling, and much more.
- Did you know that following the stock market too closely can be detrimental? Humans greatly overestimate the probability of rare events and are too heavily influenced by them in their decision making. 30 years after the 1987 stock market crash, many people can recall that day vividly. How many people however recall that that 1987 closed the year with a 2% gain?
- Did you know that Brie’s husband Steve Fraser was named the 2017 Vancouver Firefighter of the Year? We want to congratulate Steve who is a twenty-year member of the Vancouver Fire Department and has played a critical role in the development of a mental health awareness program. Steve is experienced in coaching people through traumatic events and working with individuals in crisis.
Mailey Rogers Group is here to help and we welcome any questions you may have.
Senior Wealth Advisor
Director, Wealth Management
Mailey Rogers Group