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Despite growing trade tensions between Washington and Beijing, the global economy and most world stock markets continued to grow in July. Inflation rose slightly in many countries, a trend that should continue in 2018, while the risk of recession remains low.

Focus on the past month

Overview of global equity markets
  • In the United States, despite the mixed performance of certain technology stocks, the equity markets ended the month in positive territory, with the S&P 500 gaining 2.7% and the Nasdaq, 1.1%.
  • Canada’s benchmark index, the S&P/TSX, rose 1.1%, led by the strong performance of industrials (4.8%), telecoms (3.8%) and financial services (2.2%).
  • International stock markets also did well, with the EAFE gaining 1.4%.
  • After a difficult month of June, emerging markets were up 1.1% in July, although Chinese stocks fell 3.5% during the month.
Key events


  • In early July, the United States launched the first salvo in a trade war that the whole world had feared by announcing the imposition of tariffs on tens of billions of dollars of Chinese imports. The Chinese government was quick to retaliate with tariffs of its own of an equivalent value. President Trump went back on the attack with new levies that will go into effect in late August. For now, there is nothing to suggest a quick end to the conflict between the two global superpowers.
  • An agreement in principle was signed between the United States and Europe on a reduction of tariffs and an increase in imports of U.S. agricultural goods, which had a positive effect on European equities.
  • Stock market volatility increased in the last days of the month, primarily due to the announcement of lower-than-expected results from Netflix and Facebook. At one point the popular social networking company lost more than 20% of its stock market value. The strong performance of the shares of these technology companies has a major impact on the markets, particularly the Nasdaq.
  • As expected, the Bank of Canada announced a new 0.25% increase in its benchmark rate, a move that will likely be repeated before year-end.
  • Contradictory signals surrounding the renegotiation of NAFTA continue to weigh on Canadian stocks. The U.S. administration seems to want to first conclude an agreement with Mexico which would then serve as a basis for new discussions with Canada.
  • Government of Canada bonds of all maturities fell by 0.7%, bringing their cumulative return for 2018 to 0%.
  • U.S. job creation was not as strong as expected in July, but the numbers for June were revised upward, which translates into a bigger-than-expected gain for the two months combined. In addition, wage inflation was stronger than expected. These factors are positive signs for U.S. growth.
Performance of our funds

Our funds generally performed well in the past month. Since the beginning of the year, our FDP Canadian Equity Portfolio and FDP Canadian Dividend Equity Portfolio, as well as our FDP Balanced Portfolio, FDP Balanced Growth Portfolio and FDP Balanced Income Portfolio, have all been in the first quartile of their respective category in the Morningstar rankings for their performance.

Our strategic monitoring

Main risks to consider

Apart from the escalation of the trade dispute between the United States and China, here are the main risks that we will be monitoring in the coming months.

  • Rising inflation, combined with weaker economic growth, could lead to a period of stagflation, i.e. an increase in prices in a stagnating economy.
  • By making the mistake of raising its benchmark rate too quickly, the U.S. Federal Reserve would likely dampen U.S. and global economic growth.
  • An unfavourable outcome of the NAFTA renegotiations and tensions in the Middle East following Washington’s withdrawal from the Iranian nuclear deal could generate concern on the markets.
Fundamental indicators

The main fundamental indicators were little changed and are at levels that suggest that the risk of recession is quite low. Among those that still augur well for the economy and the stock market are the global purchasing managers manufacturing index, new orders and U.S. job creation and earnings growth.

Our strategies

Our strategy of overweighting equities still seems to us to be the most appropriate in the current environment. We continue to favour equities primarily for the following reasons:

  • Economic conditions are favourable and the risk of recession is low.
  • The threat of uncontrolled inflation remains limited.
  • Corporate revenue and earnings growth remains sustained.
  • Stock valuations are reasonable.

François Landry, CFA
Senior Vice-President and Chief Investment Officer

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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