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Global stock markets rebound

After a difficult month of May, stock markets worldwide rebounded in June. They reacted positively to the possibility that central banks will ease their monetary policies shortly and to the respite announced in the U.S.- China trade dispute.

Focus on the past month

Overview of global equity markets1

  • In Canada, the benchmark index of the Toronto Stock Exchange, the S&P/TSX, was up 2.5% in June
  • U.S. equity markets performed well, with the S&P 500 gaining 3.6% and the Nasdaq, 4.1%.
  • International stock markets were also in positive territory, as reflected by the 2.6% rise in the EAFE Index.
  • Emerging markets ended the period with a gain of 2.9%, while Chinese equity markets climbed 4.7%.

1 All the percentages in this section are in Canadian dollars.

Key events

  • The G20 summit held at the end of the month gave rise to a meeting between the U.S. and Chinese presidents. They agreed to resume talks with a view to a trade agreement and to put on hold the additional tariff increases that had been announced. Although this overture seems encouraging, the points of contention that remain will be the most difficult to settle.
  • Job creation in Canada fell, with 24,000 full-time jobs being filled while 26,000 part-time jobs were lost. The situation was very different in the United States, where 224,000 jobs were created versus expectations of 160,000.
  • The major central banks suggested that they could reduce their benchmark rates and put in place new measures to stimulate the economy. Despite strong job creation in June in the United States, the U.S. Federal Reserve will lower rates by at least 0.25% in July because of global trade uncertainties.
  • Saudi Arabia and Russia agreed to extend by nine months the agreement between OPEC and non-OPEC members to cut oil output. High U.S. oil production and the global economic slowdown are limiting the negative impact of the drop in Iranian oil exports related to the economic sanctions imposed on this country by the United States.
  • Government of Canada bonds posted a return of 0.3% for the period, bringing their year-to-date return in 2019 to 3.9%.2

2 Source : Canaccord Genuity 

Performance of our funds

In general, our funds performed relatively well in June and in the second quarter of 2019.


Our strategic monitoring

Main risks

Here are some risks that could generate more volatility on the markets.

  • Despite the resumption of negotiations between the Trump and Xi Jinping administrations following the G20, an escalation of trade tensions between the two superpowers is still possible, which would likely hurt American consumers.
  • An armed conflict cannot be ruled out as tensions mount between Iran and the United States against a backdrop of severe economic sanctions and non-compliance with the terms of the 2015 international nuclear deal.
  • Brexit should come into effect on October 31 and the next prime minister of the U.K. could favour a no-deal exit from the European Union.
  • The USMCA was signed by Mexico and Canada would be ready to ratify it provided that the United States does likewise. Given U.S. Democrats’ hesitation to endorse the new deal, there is a threat that President Trump will cancel the current free trade pact in order to pressure his political opponents to sign the agreement.
Fundamental indicators

New orders – United States
The U.S. Purchasing Managers’ Index (PMI) is falling and is now at 50, which is close to the contraction level

Number of new jobless claims – United States
This indicator dropped, which means that the U.S. labour market remains very solid.

Our strategies

We reduced the equity weighting of the FDP Tactical Asset Allocation Portfolio by 10% in May and the equity weighting of our balanced portfolios was also lowered. From a tactical standpoint, the mixed economic data of the past few months and the global slowdown 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.

The current cycle is at an advanced stage and the trade tensions between China and the United States persist, so we remain cautious about the stock market..

 

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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