September 2017 review and market outlook

Market commentary by Kim Mailey

October 6, 2017

September saw a buoyant mood and attractive returns!

Global markets have remained in a buoyant mood in recent weeks thanks to a steady stream of positive economic data and supportive monetary/fiscal policy developments. I continue to have an optimistic outlook with respect to the ability of this current business cycle to continue generating healthy, albeit historically modest growth.

September ’17 Y-T-D 1 Year 3 year 5 year 10 year
S&P/TSX Composite + 2.78% + 2.27% + 6.17% + 1.48%/yr. + 4.89%/yr. + 1.04%/yr.
S&P 500 (C$) + 1.59% + 4.45% + 10.59% + 12.47%/yr. + 17.29%/yr. + 7.54/yr.
S&P 500 (U$) + 1.93% + 12.53% + 16.19% + 8.50%/yr. + 11.83%/yr. + 5.14/yr.
MSCI EAFE (C$) + 1.88% + 8.79% + 10.39% + 6.00%/yr. + 10.64%/yr. + 0.73%/yr.

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

I have added an extra row to the table above to illustrate the impact of the foreign exchange rate for the Canadian dollar over time. 2017 began the year with the Canadian Dollar valued at $0.74 per U.S. Dollar. While the S&P 500 Index has grown by 12.53% year-to-date, the strength of the Canadian Dollar converts this to a return of only 4.45% in Canadian Dollars with its close at $0.80 per U.S. Dollar at the end of September.

The global economic recovery cycle remains robust and broad with growth hitting cycle-highs while economic momentum accelerates throughout all regions. Unemployment rates continue to slide and inflation rates remain low and near the bottom of the acceptable band for the central banks. An increasing number of central banks are moving to dial back ultra-accommodative monetary policy settings through interest rate hikes or reduced quantitative easing (QE). While the market is always vulnerable to a 10% correction, bear markets are usually associated with a recession and there is no serious downturn in sight for the economy.

Indicators suggest that while we are in the late stages of the business cycle, the next recession is unlikely to begin until 2019, at the earliest. We remain overweight equities and underweight fixed income on bullish growth/inflation/yield trends. A cyclical bias across asset classes (industrials, resources, financials, etc.), sectors and countries is maintained.

I have also noticed the press emphasizing “record territory” for closing market values these days. It is easy to interpret this as something which must be due to retreat, however it is simply stating a fact. To the left is a chart of the Dow Jones Industrial Average since 1900. Sure there have been periods of decline, but in a generally upward sloping graph it only makes sense that there would be considerable periods of time where the markets were closing at all-time highs.

Despite the possibility of a small near-term pullback, we believe equities still offer better relative valuations and remain under-owned. Any potential pullback or spike in volatility would be a buying opportunity in the view of Scotia Wealth Management’s Global Portfolio Advisory Group. They suggest that investors could replace their proverbial fear of an imminent “meltdown” with images of a slow and steady “melt-up” within equities as the risks surrounding the timing of the end of the cycle remain skewed to beyond 2019 rather than sooner. Traditional end-of-cycle indicators remain encouraging.

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.

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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