August 2018 Market Watch

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

The theme of the markets seems to be “uncertainty” as trade regulations and relationships around the world are tested. The returns of the last quarter posted by major corporations were undermined by advancing disruptor stocks. The Bank of Canada’s decision to increase interest rates also played a role in mutual fund returns.

  Rick Irwin, CFP, CLU

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.

 Patricia Bell, PFP

Many of us here in the Maritimes are eagerly anticipating some time away from the office to enjoy our all too brief summer, so our thoughts aren’t necessarily on investing or saving. However, as we look forward to our vacation (or lament the fact that we’ve already had it), keep in mind that if you don’t stay within your budget you could wind up paying more than you expected for your fun in the sun.

Both the US Federal Reserve and the Bank of Canada (BOC) have begun increasing their overnight rates (the interest rate at which major financial institutions borrow and lend each other money overnight). On July 11, the BOC increased the overnight rate to 1.50% (the fourth increase since last July).

The bank prime rate, by comparison, is the lending rate banks charge us, the customer, to borrow money, usually with a premium added to it. The prime rate is also used to help set mortgage and credit card rates. Currently most banks prime is 3.45%.

It’s easy to over indulge when we’re on vacation, spontaneity can make your vacation more interesting for sure. Just make sure it’s the non-credit kind.