Market Watch Summer 2015
Posted 21 Aug 2015 by Rick Irwin, CFP, CLU
2015 started out very strong, but stock and bond markets ended up giving back some of their gains during the second quarter of the year. Volatility has increased due to several factors: uncertainty surrounding the Greek debt situation, the pullback in the Chinese domestic stock market and anxiety over the timing of the first U.S. Federal Reserve rate hike. For globally oriented Canadian investors, the drop in the Canadian dollar relative to global currencies, most notably the U.S. dollar, was a cushion during this period. We need to always remember that markets do not always produce positive returns in the short term. Temporary declines are a normal part of the investing process and they help to reset expectations and create opportunities.
The drop in oil prices contributed to relatively poor performance for stocks in this sector and, given that that this sector is such a large important part of the Canadian landscape, the Canadian stock market has not had a great run. After two back to back years of phenomenal gains, the U.S. market is flat for the year also. At the same time, the overseas markets have done well in this same time frame reflecting perhaps a change in sentiment.
Despite the increased volatility in the markets as of late, the general outlook has not changed. The global economy is improving but growth is still not robust. This is not necessarily bad news however as it may also mean that the recovery will be longer and interest rates will remain lower than normal for longer, which is generally seen as a good backdrop for investing. It’s nice to see things trend straight upward but that’s not investment reality.
Despite the noise surrounding Greece and China, both of which are unlikely to have any major spillover effect to the global markets, there are some very interesting investment themes that have a high degree of potential. These include the effect that “disruptive technologies” will have, on the stock market and on the economy, where the gap between winners (Netflix, EBay) and losers (Blockbuster, Sears) will widen. In this context, the shift to cloud computing, next generation retailing and rise of social networking will continue to have a huge impact. Another significant force is the ongoing rise of consumers in emerging markets, which are home to more than 90% of the world’s population under the age of 30, and who are rapidly moving into middle class, which will have a profound effect for years to come.
While the next few months may be bumpy as markets work through some of the issues at hand, I am cautiously optimistic for the remainder of the year. If you have any questions or concerns about your investments, please do not hesitate to get in touch.