Market Commentary

Making Cents of the Markets

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While the month of September is on track to close positive, we saw mixed performance this week, with markets on both sides of the border finishing lower. The TSX dropped 1.2% and the S&P fell 1.0%. Similar to last week, gains were made through trade optimism but they were more than offset by weaker European economic data and new impeachment concerns.

The news that China waived tariffs on a large shipment of soybeans indicates progress ahead of the upcoming meeting of states on October 10th, though it’s unlikely we will see a concrete deal for some time.

The latest US economic data was mixed and rather lukewarm but showed that the US economy is still moving forward. The US economy grew at 2.0% in the second quarter after rising 3.1% in Q1. This momentum is expected to continue for the last two quarters and the forecast for the full 2019 year is a healthy 2.6% growth. It’s important to note that the economy, measured by GDP growth, has to come to a full stop and then move in reverse (shrink) to be in a recession and we aren’t close to that yet.

The new round of impeachment concerns have the market worried about it’s impact on the trade dispute negotiations but otherwise, we believe that it is improbable that any movement results in Trumps removal from office. The election is just over a year away and the process would typically take longer than that but most importantly, the Republicans hold the Senate and they are already defending the White House so it’s more probable that it swings the election out of his favour than remove him from office directly.

Our Strategy

We maintain a positive outlook but feel a meaningful move above the old high is unlikely near-term unless trade talks are successful and earnings season finishes strong. A good example of the economic health of the US is illustrated in the strong earnings reports from Cintas and Nike.  As our friends at Bespoke Research put it, “From purely an anecdotal basis, it’s hard to get too concerned about the state of the US economy when one of the largest companies for uniform supplies in the country (Cintas) just reported an earnings triple play”.

A trade set-back could result in a technical breakdown and bring increased volatility, potentially giving up some recent gains but a consolidation period (sideways movement) followed by a breakout to new high, especially on a trade deal and good earnings, sets the market up for excellent expansion – exactly what the Oval Office wants leading into the election campaign. The concessions from China on soybeans is very positive and we feel this trend will continue but we’re careful to wait for more concrete information because Trump could get aggressive again in an effort to distract from the impeachment and Ukraine meaning negotiations could falter.

We also believe the US Fed has enough ammunition in the form of interest rate cuts to add a significant boost to the economy and markets. Spending is what drives the economy and lower interest rates means more money in people’s (and corporate) pockets to be able to spend. This will keep the economy from grinding to a halt and shrinking for the short-term.

With portfolios hitting highs, we’ve already made shifts to capitalize on the profits and are maintaining that diversification in the near term.

Chart of the Week

The end of September has traditionally been weaker but looking ahead, the outlook is much better. The S&P 500’s median three-month return from the close on 9/25 over the last ten years has been a gain of 7.10%, which is better than 99% of all other three-month rolling periods throughout the year.

Beyond the markets

This weekend is all about celebrating the vast and diverse cultures throughout British Columbia! You can experience the best of Chinese culture at the Vancouver Art Gallery this Saturday where the Chinese Culture and Arts Festival will be taking place. There will be plenty of food tents, musical performances, and activities for people of all ages! You will also be able to take in the beautiful Zigong lanterns that will be on display during the festival.

Also taking place this weekend is the Vancouver International Flamenco Festival! Flamenco is a rhythmic style of dance and song that can be traced back to 18th century Spain. As one of the few festivals devoted to Flamenco outside of Spain, it is a great opportunity to experience Spanish culture. This festival is sure to make tap your feet and dance in your seat, so pick up your tickets now!

Listen to last week’s Making Cents of the Markets on CKNW. Listen here.

Take a look here at our latest North Shore News article where we explore different types of retirees! We get insight from our very own clients to give you a better idea of the possibilities you have when entering retirement.

This commentary has been prepared by Pinkowski Wealth Management. It is for informational purposes only. Raymond James Ltd. believes this information to be reliable but does not guarantee its accuracy or completeness and is not responsible for any errors or omissions. Raymond James Ltd, member Canadian Investor Protection Fund. This email may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.