December 20, 2019
Making Cents of the Markets
Be in the Know
Markets continued to edge higher this week as investors warmed up to the Phase One trade deal that was announced last Friday. US markets continue to lead the rally as the S&P was up 1.6% on the week while the TSX lagged but was still up 0.7%. A deal must be signed but markets are evidently optimistic that the deal will be finalized in early January, as planned.
On Thursday, we witnessed a historic event as the House of Representatives voted to impeach President Trump on two charges, yet markets moved higher despite the news. Investors remain unconcerned as the vote is preliminary to the Senate trial, which the market determined long ago will not lead to the president’s removal from office. This impeachment is destined to conclude the same way the previous two did; acquittal by the Senate.
Positive data continues to come out of the US with housing starts increasing 3.2% in November, as the US housing market remains in a healthy state. Economic data continues to surprise to the upside in the US; whereas, we have seen it weaken in Canada. Specifically, we saw Canadian manufacturing sales decline for the second month in a row as they softened by 0.7% while inflation accelerated to 2.2%.
Markets remain resilient in the face of any negative news as investors look forward to 2020, expecting corporate profits to grow again after a flat year. The recent Christmas rally in stocks has been largely based upon expectations for improving growth, which warrants caution if these expectations are not realized. We are aware that performance-chasing and fear of missing out may have extended this rally, and are prepared for a potential pullback in the near future.
The strength of US economic and corporate data relative to Canada supports our exposures, favoring companies within the US. We do not expect this to change much in 2020 as this pattern of relative strength has continued since 2014. Given that the recent performance of the market has been mostly based upon expectations, we remain balanced in our positioning with a mix of growth and defensive exposures. Now that the trade deal signing has been moved to January 2020, we expect that markets will likely move higher still but know that is susceptible to a pullback if any delays or changes are announced. As always, we continue to gauge risk levels and are prepared to make any changes if conditions start to deteriorate but are optimistic based upon consumer sentiment and overall market confidence.
Chart of the Week
As seen below, we continue to see leading economic indicators improve in the US and Europe while these indicators have deteriorated within Canada. Relative market performance has confirmed these divergences as the US and Europe continue to outperform Canada over the last 6 months. While there are no signs of a recession today, we track these closely to position clients in the strongest areas of global markets and are pleased with our current geographic allocations.
Beyond the Markets
Another successful year has almost passed. And with the dawn of a new year fast approaching, we want to thank all of our devoted clients for making these past 353 days exceptional. We encourage all to take time to unwind and spend these merry moments with loved ones. As it is the holidays, this will be our last Market Commentary until the New Year. We are already looking forward to providing you with more market insights come January. Happy holidays!
Listen to this week’s Making Cents of the Markets on CKNW. We dove into the markets, charitable giving, and budgeting during the holidays! Listen here.
Take a look here at our latest North Shore News article where we discuss how this is the time to ensure you take advantage of any tax-efficient decisions that need to be made before 2020!