We are inaugurating a new column that looks at the key developments of the past quarter and their potential impact on your portfolio.
Risk of recession indicator
They hit new highs: in February, the Toronto market set a new record, rising above the 15,700 mark; in March, it was the Dow Jones turn to reach unprecedented levels, closing at 21,000 points.
The World Bank is forecasting growth of 2.7%* for 2017, but trade protectionism could lower these projections. The possibility of disappointing growth has not been discounted by the markets. According to Mario Draghi, president of the European Central Bank (ECB), the risk of deflation in the euro zone has dissipated and inflation forecasts have been raised to 1.7%* for 2017 and 1.6%* for 2018. China has revised its economic growth target to 6.5%*, after posting real growth of 6.7%* in 2016.
In Canada, it remains unchanged; in the U.S., the Fed raised its benchmark rate by 0.25% in March; in the European Union (EU), the ECB anticipates a rate hike in 2017 (while continuing its quantitative easing program). Conditions are stimulative and the cost of credit remains very low.
Impact of the first 100 days of the Trump administration
All eyes are on the White House, where the new president has initiated an important series of measures (Keystone XL project, renegotiation of NAFTA). Trump’s “America first” policy portends an era of protectionism. The failure of healthcare reform is a bad omen for his tax reform project, which had fueled a market rally since January. In Canada, the C. D. Howe Institute says that the renegotiation of NAFTA could destabilize the supply chain and cause our annual GDP to drop by 1%.
Rise of populism and globalization
While the U.S. announced the implementation of protectionist measures, China’s President Xi Jinping defended globalization at the World Economic Forum in Davos, Switzerland. The idea of a Frexit is emerging on the eve of the French elections, while voters in the Netherlands opted for the status quo. The U.K. started the process of withdrawal from the EU – stay tuned.
How will we manage the portfolios?
The valuation of the S&P 500 Index remains high, but the market trend is favourable and investor sentiment is positive. We continue to favour a higher equity weighting in our portfolios, but we are monitoring the markets closely and are ready to take action to protect your assets and control volatility.
Returns of our funds
To know more about the returns of our funds, please visit the dedicated page of our website.