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

Senior Portfolio Manager, Asset Allocation and Alternative Strategies

Financial markets end the year strongly

Most global stock indexes posted solid gains in December, ending the last quarter of 2019 on a positive note. Coming as it did in the context of a slowing of the global economic expansion, this performance may seem surprising, and we will have to see what impact the various geopolitical risks and central bank actions will have on the markets in the coming months.

Focus on the past month

Overview of global equity markets*

  • The benchmark index of the Canadian stock market, the S&P/TSX, edged up 0.5% in December, bringing its return for the year to slightly more than 20%.
  • Wall Street did even better, the S&P 500 and the Nasdaq rising 3.0% and 3.5%, respectively.
  • International stock markets also performed well, with the EAFE Index up 3.2%.
  • Emerging market stocks rose 5.5%, while Chinese equities climbed 6.2%.

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

Key events

  • U.S. job creation was weaker than expected, with 145,000 new jobs filled, versus expectations of 160,000. Nevertheless, the unemployment rate remained low, at 3.5%, while wage inflation reached 2.9% for the past 12 months.
  • After losing many jobs in November, Canada saw 35,200 new workers join the labour force in December, far exceeding the forecast of 25,000. The jobless rate fell from 5.9% to 5.6% and wages grew by 3.8% over the past 12 months.
  • The controversial impeachment process continues: articles of impeachment of the U.S. president were passed by the Democratic-majority House of Representatives, and the trial of Donald Trump should soon begin in the Senate, where the Republicans are in the majority.
  • Trade tensions have eased somewhat following the conclusion of phase one of a deal between Washington and Beijing. This first phase of the agreement should be signed on January 15, 2020 in the United States.
  • The day after the UK elections, Boris Johnson found himself leading a majority government which will enable him to end the Brexit impasse. Britons will officially leave the European Union on January 31, 2020.
  • The U.S. Federal Reserve (Fed) and the Bank of Canada left their policy rates unchanged in December.
  • The loonie rose to US$0.7699 in November and is up 3.6% year over year against the greenback.
  • Government of Canada bonds across maturities posted a return of -1.1% for the period, ending 2019 with a cumulative return of 3.6%. (Source: Canaccord Genuity)

François Landry
CFA

Vice-President and Chief Investment Officer

Vice-Chairman of the Board of Directors of Professionals' Financial - Private Management

Performance of our funds

The performance of our funds generally exceeded expectations, with balanced portfolio holders obtaining the highest return in several years. Unlike 2018, all asset classes contributed to these good results.

Experts were surprised by the strong rise in bonds, which played a key role in the performance of our balanced portfolios, while stocks posted much higher returns than their historical average, thanks in large part to price-earnings multiple expansion.

Our strategic monitoring

Main risks

Here are some risks which could negatively impact the economy and the markets.

  • The process to impeach the U.S. president continues and the polarization of the impeachment hearings is dividing the country, which could create uncertainty.
  • If the talks between Washington and Beijing on an eventual phase two leading to a more comprehensive trade deal do not succeed, we will likely see an escalation of tariffs which would dampen global growth.
  • The possibility that the new trade agreement between the United States, Mexico and Canada (USMCA) will not be signed by the different political bodies of the countries concerned is very real. However, Congressional Democrats and Republicans seem ready to sign the deal, which they view as independent of the impeachment process.

Fundamental indicators

Growth of the U.S. money supply

The growth of the U.S. money supply accelerated, which prompts consumers to spend or invest. Such a situation usually generates economic activity and growth, but can also result in a rise in inflation.

Our strategies

No change was made to our strategies or our portfolios in December. We maintained the targets of our FDP Tactical Asset Allocation Private Portfolio at 40% bonds and 60% equities. This decision was based on a number of factors, including the following:

  • Equity and bond risks generally seem more balanced.
  • The likelihood of a global recession has decreased.
  • Corporate earnings are higher than expected.
  • Employment is still improving in the United States, and North American and European consumers remain confident.

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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