September 2016 Market Watch
Posted 21 Sep 2016 by Rick Irwin, CFP, CLU; Patricia Bell, PFP; Melissa Allan, Lorna Maughan
After a sharp, but short, sell off at the end of June in the wake of the Brexit vote, financial markets staged a strong recovery which tapered off towards the end of the quarter. October tends to be one of the weakest months for the stock market and with the pending US presidential election in November it wouldn’t be surprising to see some sideways movement for the next few months.
We have had many inquiries from clients about what a Trump victory would mean for financial markets. The reality is that no one truly knows but the most likely answer is: very little. Markets appear to be pricing in a strong probability of a Clinton victory and if she does win the markets will probably have little reaction. If Trump wins there could be a short but sharp fallout, as there was with the surprise vote in Britain, but then it’s quite probable that cooler heads will prevail and markets will return to “normal” before too long, just as they did after Brexit.
Markets hate uncertainty and they react poorly in the short term to surprises or, perhaps better put, outcomes that are different from the ones they had priced in. At the same time, markets are also very quick to take stock of the new information and look at what impact there really is on the long term outlook for businesses, given the new political or economic environment. In the case of Trump, it’s important to remember that while the US president may have tremendous influence globally they have very little power to force their own agenda at home without the support of the various levels of government. The US political system was funded on a series of check and balances that, while leading to dysfunctional stalemates at times as we have seen in recent years, ensures that no one person can exercise absolute power. So it’s extremely unlikely that there will be walls built between the US and Mexico or that long standing free trade agreements will be “ripped up” overnight.
What is of concern is that if the US takes a more inward view that global trade could indeed suffer which would affect trade dependent countries like Canada and China. Also, global uncertainty could rise if the US is no longer seen in its traditional “Team America: World Police” role.
Rick Irwin, CFP, CLU
“We have spoken with a few fund managers that were holding considerable cash leading into the vote in Britain last June. While many of them put a fair bit of this cash to work during the fallout that ensued, some were lamenting that the downturn hadn’t lasted longer to give them more of an opportunity to take advantage of the situation.”
Patricia Bell, PFP
“Robert Pemberton, the Head of Fixed Income for TD Asset Management, recently opined that ‘sideways could be the new up’ when it comes to bond yields, pointing out that in 22 countries investors are actually paying governments for the privilege of lending them money. With the median age in Canada increasing investors may need to rethink the role of fixed income in their portfolios and realize that fixed income will be more for portfolio stability and safety as opposed to growing wealth and preserving real purchasing power. “
“Investment strategies are meant to work long term over market us and downs. I cannot stress how important it is to stay disciplined and meet with your advisor to rebalance. We have taken measures to put you in a portfolio based on your risk tolerance and investment objectives knowing there will be dips. Capturing only the upside is pretty much impossible. Rather than making lump sum deposits in your investment account once a year, I highly recommend setting up regular contributions on a monthly basis. This dollar cost averaging strategy is proven to be effective and is in my opinion one of the very best investing principles out there. “
“For some of my British Expat clients the drop in the pound sterling to Canadian dollar following Brexit on 23 June has been quite dramatic. However the dust seems to have settled and the rate has stabilised for now, but there are strong rumours that there could be another Bank of England interest rate drop later in the year and how this will affect the strength of the pound is yet to be seen. “
Whatever the outcome this November, or whatever else world events throw our way, it’s important to remain focused on your long term goals and to remember that proper diversification, active stock picking, and both defensive and opportunistic strategies that are employed by active fund managers, have the potential to generate a smoother ride than experience by the broad markets. As always, if you have any questions or concerns about your investments, please do not hesitate to get in touch.