May 2018 Market Watch

Posted 04 May 2018 by Rick Irwin, CFP, CLU; Patricia Bell, PFP

The recent volatility of the world markets follows a period of steady growth that was, in fact, more unusual than the volatility itself. The ever-present uncertainty of the markets has been fueled by both political conflict and consumer-concerning news from new business leaders like Facebook.

  Rick Irwin, CFP, CLU

During the early months of 2018 global stock markets have experienced a fair degree of volatility, causing some investors anxiety after an unusual period of low volatility in 2017. In fact, the last time the stock market (using the broad US market as the de facto proxy) was this calm was the year the Beatles first played the Ed Sullivan show. Until recently, it had been a long time since the markets had a down month; in fact, the steady gains that ended in February 2018 represented one of the longest run of positive months ever! Fund managers we’ve spoken with welcome the return of normal market fluctuations; while unpleasant in the short term they underpin a healthier market environment for long-term investors.

There are several reasons for the return of volatility; concerns over fallout from the escalating trade war rhetoric between the US and China being one. Another cause for concern related to high profile social media companies like Facebook facing potential risks to their business models due to possible regulatory changes. Or perhaps it was just time for markets to “normalize” and return to an environment where fluctuations go both ways as investors constantly assess and reassess the prices of stocks, individually and as a whole, based on ever changing sets of political, economic and social circumstances.

We feel it is a good time to be partnered with active managers and not just ride the overall market trend. We feel, as always, it’s important to be diversified. High flying US tech stocks dominated the markets over the last few years but have been poor performers year to date and other more value oriented funds that have suffered one of their worst runs of relative performance in some time (perhaps even back to the dot com bubble of 1999-2000) may be poised to outperform.

Investment news television is rife with commentators who speak confidently of what has recently happened and the views of what may happen next may seem compelling, but the reality is that stock market behaviour, especially in the short term, is incredibly hard to predict. (Weather reporters take heart!) In light of this, we feel it is best to invest within your personal risk tolerance level using a diversified portfolio that is comprised of things that will, individually, always be boring, paired with things that will be sometimes awful and sometimes great, to help weather the inevitable market storms and ensure you reach your long- term investment goals.

 Patricia Bell, PFP

Unless, like me, you were lucky enough to escape for a while to more southern climates, there wasn’t much to like about our winter weather and the same held true for many financial markets.  Even though March saw the benchmark TSX index gain 1.3%, the previous two months had put it on track for its biggest quarterly drop in more than two years, a decline of 5.2%. The market has been mixed since then, resulting in essentially a flat return over the past year.

An old adage advises, “The only thing we can be certain of is death and taxes.” I think it’s time to add on “and market volatility.” While not comfortable to experience for most of us, it’s this volatility that allows portfolio managers to add value to their holdings. It gives them the opportunity to deploy some of their cash reserves by taking advantage of lower prices and add holdings they may viewed as too pricey when things were more stable.  When markets are on an upward trajectory it can be difficult for managers to buy the holdings they like if they think the price is too high.

Trade wars, housing bubble, fake news.  Some popular sound bites you’ll hear from the news media trying to ensure you “don’t touch that dial!” The key is to remember the news media isn’t in the business to give investing advice. We are.  If your investments are keeping you awake at night it’s time for a review. Portfolio managers are fans of volatility, it doesn’t mean we have to be.