Focus on the past month
Overview of global equity markets1
- In the United States, the Nasdaq fell 1.3% in August while the S&P 500 lost 0.5%.
- The Canadian stock market fared better, with the S&P/TSX gaining 0.4% during the month.
- International stock markets lost ground, with the EAFE Index ending the month down 1.4%.
- Elsewhere in the world, emerging markets fell 3.8% while the Chinese stock market retreated 3.1%.
1 All the percentages in this section are in Canadian dollars.
- Trade tensions between Washington and Beijing continued to make the headlines, with the United States first announcing the implementation on September 1 of 15% tariffs on an additional US$300 billion of Chinese imports. President Xi Jinping retaliated with additional tariffs on US$75 billion of U.S. goods. This escalation of the conflict negatively impacted stock markets and President Trump decided to postpone to mid-December the imposition of the new measures announced, opening the door to a resumption of negotiations between the two superpowers in October.
- In Canada, the unemployment rate remained stable, at 5.7%. More than 81,000 new jobs were created in August, when forecasts were for 20,000. In addition, Canadian annualized gross domestic product (GDP) for the second quarter grew by 3.7%, versus an expected rise of 3%.
- The United States reported 130,000 new jobs created, below expectations of 160,000.
- German manufacturing data continued to weaken, pushing interest rates down around the world and shaking investor and business confidence.
- The 10-year/3-month yield curve remained inverted in both Canada and the United States. An inverted yield curve indicates a probable recession within 12 months.
- Government of Canada bonds rose 1.9% during the month, bringing their year-to-date return in 2019 to 5.8%.
(Source : Canaccord Genuity)
Performance of our funds
Our equity portfolios outperformed their benchmark indexes, except for those with dividend and value management styles, two approaches that have been less popular with investors in the past 18 months.
Our fixed-income portfolios trailed their benchmark index, due primarily to the decline in interest rates in August. However, their 2019 year-to-date absolute return has largely exceeded early year expectations.
Note the excellent performance of six of our funds which received 4 stars (out of 5) in the Morningstar ratings of August 31: the three FDP Balanced Portfolios (Balanced, Balanced Growth, Balanced Income), as well as the FDP Canadian Equity, US Equity and Global Equity Portfolios.
Our strategic monitoring
Here are some risks which could hinder economic and market growth over the next few months.
- If the resumption of negotiations between the United States and China slated for October does not result in an agreement, the global economy could contract, which would lead to a loss of business and investor confidence.
- As the October 31 deadline approaches, Brexit remains a concern. At this stage, there is a real possibility that the U.K. will leave the European Union without an agreement and this situation could have serious consequences for the economy and the financial markets in Europe and elsewhere in the world.
- The loss of credibility of the US. Federal Reserve (Fed) if it seems to be giving in to the demands of President Trump and the fact that the United States-Mexico-Canada Agreement (USMCA) is still not signed are also sources of uncertainty.
U.S. benchmark rate
The Fed reduced its benchmark rate at the end of July and another rate cut could occur around mid-September, which indicates that the U.S. central bank favours an easing of its monetary policy.
U.S. 2-year / 10-year yield differential
The U.S. bond yield curve is inverted, with 2-year Treasuries yielding more than 10-year notes. The market believes that current monetary policy is too restrictive and that further rate cuts are required to avoid a more pronounced 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.
This slightly more defensive strategy 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.