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Yann Furic
B.B.A., M. Sc., CFA

Senior Portfolio Manager, Asset Allocation and Alternative Strategies

Stock markets gain more ground

Most stock markets did well in October, fueled by another benchmark rate cut in the United States and by encouraging news on the progress of trade talks between Beijing and Washington. While the overall economic data seem to be stabilizing, they remain mixed and global growth is not immune to the various risks that could further slow it.

Focus on the past month

Overview of global equity markets*

  • The benchmark index of the Canadian stock market, the S&P/TSX, lost 0.9% of its value in October.
  • U.S. equity markets ended the period in positive territory, with the S&P 500 and Nasdaq indexes advancing 1.6% and 3.1%, respectively.
  • Most international stock markets posted gains, with the EAFE Index up 3.0%.
  • Emerging market stocks rose 3.6%, while Chinese equity markets climbed 3.4%.

* All the percentages in this section are in Canadian dollars. Bloomberg unless otherwise indicated.

Key events


  • After lowering its benchmark rate in July and September, the S. Federal Reserve (Fed) did likewise in October. Note that in the past, stocks markets have posted a positive performance in the 12 months following three consecutive rate cuts by the Fed.
  • The 10-year/3-month yield curve is no longer inverted in the United States and is less and less so in Canada, which indicates that the risk of recession is decreasing.
  • S. job creation was stronger than expected and September’s numbers were revised upwards. In Canada, forecasts were for 15,000 new jobs in October whereas the actual number was 1,800 less. Note, however, that the number of persons who found a job in September was above expectations, so the employment situation has been favourable for the past two months. Wages were up 4.4% year over year and the jobless rate remained stable at 5.5%.
  • Overall, third-quarter company results were better than forecast. Sales and earnings generally beat expectations and the year-over-year decrease in profits was smaller than anticipated.
  • Trade talks between China and the United States are continuing and some positives are emerging from the high-level negotiations.
  • The Brexit date was postponed to January 31, 2020 and early elections will be held in the U.K. on December 12, which should tell us more about how Britons will leave the European Union.
  • The Democrats’ impeachment investigation of President Trump is paralyzing the Congress and delaying ratification of the new trade agreement between the United States, Mexico and Canada (USMCA).

François Landry

Vice-Chairman of the Board, Vice-President and Chief Investment Officer - Professionals' Financial - Private Management

Performance of our funds

Most of our funds and portfolios outperformed their benchmark indexes in October. In the Morningstar ratings, the results were mixed, with some of our portfolios performing better than others. Note that the current political uncertainty and the frequent situation reversals considerably increase the forecast risk level.

Our strategic monitoring

Main risks

Here are some risks which could hurt the economy and the markets in the coming months.

  • New developments in the impeachment investigation of the U.S. President could increase the level of investor concern and market volatility.
  • A deterioration or a failure in the trade talks between the United States and China would exacerbate the decline in the U.S. manufacturing sector and the contraction of the global economy.
  • The possibility that the USMCA will not be signed due to paralysis in Congress and the Brexit saga are other factors that will have an impact going forward.

Fundamental indicators

U.S. 2-year/10-year yield differential 

The U.S. bond yield curve is no longer inverted following the Fed’s most recent benchmark rate cut and the easing of China-U.S. trade tensions. The more optimistic economic context for the coming months has led to a rise in long-term bond yields.

Our strategies

Last May, the context prompted us to bring our bond weighting in the FDP Tactical Asset Allocation Portfolio to 55%, versus 45% for equities.

Since then, and particularly since the end of October, the risk of recession has decreased, companies have posted higher-than-expected earnings, and negotiations between China and the United States have resumed. These factors suggest that the stock market offers a higher return potential than the bond market for a comparable level of risk, which is why we have raised the equity weighting of the FDP Tactical Asset Allocation Portfolio to 60%, while lowering the bond weighting to 40%.

François Landry, CFA
Vice-President and Chief Investment Officer

Yann Furic, B.B.A., M. Sc., CFA
Portfolio Manager, Asset Allocation and Alternative Strategies

Sources: Bloomberg

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.

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