August 2018 Market Watch

Posted 01 Aug 2018 by Rick Irwin, CFP, CLU; Patricia Bell, PFP

Global stock markets generally fared well in the second quarter of the year, with the US stock market (as measured by the broad-based S&P 500) gaining nearly 3% for the quarter. Blue chip companies followed their trend of relative underperformance as market leadership continued to be concentrated in the robust technology sector. Many foreign markets also experienced positive results this quarter, despite President Trump’s sabre rattling.
For the balance of the year, uncertainty will likely remain on whether the world economies are moving toward a full scale global trade war or if the final outcome will be more muted. Some managers have shifted to smaller-cap companies or more domestically focused stocks while others are preferring to take a wait and see approach.
Here at home, a sharp jump in oil prices helped reverse losses in the Canadian stock market earlier in the year. Despite the rebound in energy prices, normally constructive for the Canadian dollar, uncertainties about NAFTA contributed to weakness in the Canadian dollar – which dropped from the 80 cent (USD) range back to 75 by mid-year. Interest rates continued to creep upwards, causing concern for some about the high-flying housing market in some Canadian cities. The Bank of Canada has a delicate job of trying to normalize interest rates, by reversing some of the emergency rate cuts put in place during the fallout from the 2008 global financial crisis, without upsetting the housing market.
Global growth is still accelerating, though at a slower pace than over the last few years. And the more robust markets like the US and China are showing signs that they are entering into the late stage of the current economic cycle.
Some caution is warranted at this point in the cycle. Diversification remains important. Now is not the time to double up on more aggressive growth-oriented investment strategies that are capturing the growth in the tech sector (though those strategies do have their place in a well-rounded portfolio). While other more conservative, value-oriented investment styles have produced disappointing results over the past few years, they will have their moment to shine as market conditions continue to evolve through the later phase of the current cycle.