March 1, 2019
Making Cents of the Markets
Be in the Know
There was no shortage of political drama this week. If you turned on your TV or looked at a news website on Tuesday morning, you were bombarded with coverage of the testimony from Michael Cohen (Trump’s personal lawyer for 10 years), and Federal Reserve Chairman Jerome Powell testifying to Congress. While there has been a lot of hype around these testimonies, what they said was already known and the market barely blinked during their testimonies. Indices ended the week slightly positive, with the S&P 500 rising 0.4% and the TSX gaining 0.3%.
We also had Trump walk out of negotiations with Kim Jong Un on Thursday, after the US said North Korea should denuclearize before removing sanctions, whereas North Korea wanted the removal of sanctions first. While this is a noteworthy headline, the markets shook it off as well. Progress was not expected on the denuclearization of North Korea, but it was a good sign that markets ignored potentially bad news and pushed higher.
The biggest market-moving news this week was, again, on trade between the US and China. There was a rumour on Friday that they are close to the final text of an agreement, and March 15 is the potential date for a summit between the two nations’ leaders. This date is somewhat earlier than expected, as April was the initial target for a summit. Given the weakness in global growth metrics as of late, this would be welcome reprieve if tariffs and the threat of increased tariffs are removed. Also late on Friday, the Canadian government decided to allow the extradition of Huawei CFO Meng Wanzhou from Vancouver to the US. President Trump did mention in the past he would intervene in the Huawei case if it helped negotiations. So we’ll see how this unfolds.
We have been slowly adding to equities over the last month given the positivity around trade, and the Fed removing expectations of a hike in interest rates over the near term. With those major concerns lifted, we have raised our equity exposure in legacy to approximately 67% to 71% across the board. The one thing holding us back from our target weighting of 70% to 80% equities is simply that the stock markets have rallied very sharply this year, and we would expect a pullback at some point. That could come next week, next month, a few months out, or it could never materialize and the rally could pull another ‘2017’. Given the progress we’ve seen, we are tilting equity exposure higher. Given the equity market run, we are not jumping in.
On trade, we see the China US deal as essentially a 90-95% probability right now. There has been too much riding on it, and it is in both the US’s and China’s best interests to get something done. We want to at least note, though, that a late breakdown in negotiations is a low probability, high downside scenario. We do not foresee it happening, but we are preparing to act quickly to protect portfolios if it does.
Chart of the Week
The US Economy beat expectations and grew at 2.6% in the fourth quarter of 2018, with some forecasts expecting as low as 1.4%. Welcome news among the global growth concerns in Europe, Japan, and China:
Beyond the Markets
From now until March 26, the Arts Club is presenting Firehall Arts Centre’s production of Circle Game: Reimagining the Music of Joni Mitchell. The production reinterprets Mitchell’s iconic songs such as “Big Yellow Taxi,” “River,” and “California” through the ears of a new generation. Having won Ovation Awards for Outstanding Professional Production and Outstanding Music Direction, Circle Game is sure to impress!
Click here to purchase your tickets!
Listen to this week’s Making Cents of the Markets on CKNW of Part 2 of the Retirement Series where we gave insight on how to retire happy and what you need to do to prepare for your next stage in life! Listen here.