Focus on the past month
Overview of global equity markets1
- In Canada, the benchmark index of the Toronto Stock Exchange, the S&P/TSX, rose 0.3% in July.
- U.S. equity markets ended the period in positive territory, with the S&P 500 and Nasdaq indexes gaining 1.9% and 2.6%, respectively.
- Most international stock markets ended the month down, with the EAFE Index off 0.8%.
- Emerging market stocks fell 0.7% during the month, while Chinese equity markets retreated 0.1%.
1 All the percentages in this section are in Canadian dollars.
- 24,200 jobs were lost in Canada in July, while expectations were for the creation of 15,000 new jobs. As a result, the unemployment rate in the country rose from 5.5% to 5.7%. Job creation in the United States was practically in line with forecasts, with 164,000 new jobs created during the month.
- The trade war between the Trump and Xi Jinping administrations escalated in late July and early August as Washington imposed new tariffs on additional Chinese imports. Beijing retaliated by letting the Chinese currency fall and by halting purchases of U.S. agricultural products.
- The S. Federal Reserve (Fed) lowered its benchmark rate by 0.25% in late July but its message did not meet market expectations. The markets had been expecting the Fed to mention the likelihood of several more rate cuts by year end, which would have given a stronger positive signal in the current end-of-cycle environment.
- In the wake of the Fed’s rate cut, interest rates fell worldwide and some central banks reacted by adopting a more accommodative monetary policy.
- The fear of a global economic slowdown and strong U.S. oil production are putting downward pressure on prices. Commodity prices are falling while the price of gold is rising, prompting investors to use the precious metal as a safe haven.
- Government of Canada bonds rose 0.1% during the month, bringing their year-to-date return in 2019 to 3.8%.(Source : Canaccord Genuity)
Performance of our funds
In July most of our mutual funds (FDP Portfolios and FDP Private Portfolios) added value relative to their respective benchmark indexes. In addition, 82% of our FDP Portfolios ranked above the median in their respective categories, according to Morningstar.
Our strategic monitoring
Here are some risks which could hinder economic and market growth over the next few months.
- The risk of an escalation of tensions between the two global superpowers increased recently, following President Trump’s announcement of new tariffs on an additional $300 billion of Chinese imports, from clothing to electronic products. These tariffs should come into effect on September 1 and if they do, U.S. consumers will be hit hard.
- Following the election of Boris Johnson as British prime minister, the outcome of Brexit, slated for October 31, is more uncertain than ever. The new PM is a strong advocate of a no-deal exit from the European Union.
- Concerns about the Fed’s independence, the possibility of a military conflict between the United States and Iran, as well as doubts about the signing of the USMCA, are other sources of uncertainty.
The risk of a recession has increased since President Trump announced the imminent imposition of a 10% tariff on an additional $300 billion of Chinese imports. This triggered a complete reversal of market sentiment, as the deterioration in market and household confidence could result in a sharper-than-expected economic slowdown.
Since May, we have maintained our bias towards bonds in the FDP Tactical Asset Allocation Portfolio. The mixed economic data of the past few months and the global slowdown have prompted us to bring our bond weighting to 55%, versus 45% for equities, whereas the targets are 55% for equities and 45% for bonds.
This slightly more defensive positioning seems appropriate to us, given the geopolitical risks which are still very present
François Landry, CFA
Vice-President and Chief Investment Officer
The opinions expressed here and on the next page do not necessarily represent the views of Professionals’ Financial. The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. Please consult your Wealth Management Advisor.