B.B.A., M. Sc., CFA
Senior Portfolio Manager, Asset Allocation and Alternative Strategies
Stock markets uptrend continues
Most stock indexes kept on advancing in November as global economic conditions stabilized. For this positive trend to continue, China and the United States will have to sign the first phase of a trade agreement for which negotiations have been dragging on for many months now, keeping the markets on edge.
Focus on the past month
Overview of global equity markets*
- The Canadian stock market benefited from the strong performance of the energy and industrial sectors, with the S&P/TSX Index rising 3.4%* in November.
- Wall Street also performed well, the S&P 500 and the Nasdaq gaining 3.4% and 4.5%, respectively.
- International stock markets were also in positive territory, with the EAFE Index up 1.0%.
* All the percentages in this section are in Canadian dollars. Bloomberg unless otherwise indicated.
- The impeachment inquiry of President Trump is still making the headlines, and the launch of these exceptional proceedings and their consequences should raise concerns in both the United States and elsewhere in the world.
- The benchmark rate of the U.S. Federal Reserve (Fed) remained unchanged during the month, as did the Bank of Canada’s policy rate. The governor of the BoC stated moreover that only a significant deterioration in the country’s economy could lead to a rate reduction.
- While some central banks around the world are lowering their benchmark rates or suggesting they will do so shortly, others seem ready to put in place fiscal or quantitative easing measures in order to support global growth.
- The U.S. economy is doing well, as witness the creation of more than 266,000 jobs in the country in November. This better-than-expected number is due among other things to the return to work of unionized GM employees after a historic strike.
- The Canadian labour market weakened significantly, with the unemployment rate rising to 5.9% for the month, versus 5.5% in October. Expectations were for the creation of 10,000 new jobs, when in fact more than 71,000 jobs were lost.
- Black Friday and Cyber Monday 2019 discounts generated a 20% increase in online sales over last year. Although part of this rise is due to a decrease in in-store sales, the net result is still positive.
- Negotiations on the new trade agreement between the United States, Mexico and Canada (USMCA) continued to evolve in November and a new agreement was signed by the three countries concerned. The new trade pact should be approved by the U.S. Senate in early 2020.
- As regards Brexit, the December elections were won by the incumbent prime minister, Boris Johnson, and the UK should withdraw from the European Union on January 31, 2020.
Vice-Chairman of the Board, Vice-President and Chief Investment Officer - Professionals' Financial - Private Management
Performance of our funds
The performance of our balanced funds, i.e. the FDP Balanced, FDP Balanced Growth and FDP Balanced Income Portfolios, was strong in November. Our Canadian equity and global equity funds also did well, beating their benchmark indexes.
Except for the FDP Global Fixed Income Portfolio, all our funds were above the median in the Morningstar ratings. To date in 2019, the cumulative returns of our funds are outstanding, thanks, among other things, to the contribution of bonds and stocks.
Our strategic monitoring
Here are some risks that could impact the economy and the markets in the coming months.
- U.S. Democrats accelerated the process to impeach President Trump, but the polarization of the impeachment hearings is dividing the country and could create uncertainty.
- If the talks between Washington and Beijing on the first phase of a trade agreement do not succeed by December 15, new tariffs will come into effect, which would slow trade between the two countries and dampen global growth.
- Rising tensions in Hong Kong and the possibility of a diplomatic crisis if the Chinese army intervenes against the pro-democracy militants are two other potential sources of global instability.
Global Purchasing Managers’ Index
This index has stabilized, which could indicate a reversal of the recent downtrend. Although encouraging, its current level still reflects some weakness in economic activity.
In November, we increased the equity weighting of the FDP Tactical Asset Allocation Portfolio to 60%, while lowering the bond weighting to 40%. This decision was based on a number of factors, including the following:
- Equity and bond risks generally seem more balanced in recent months and especially since late October.
- 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.
We continue to closely monitor the financial markets, since expectations of a re-acceleration of the global economy are already discounted in the stock market’s positive performance.
François Landry, CFA
Vice-President and Chief Investment Officer
Yann Furic, B.B.A., M. Sc., CFA
Portfolio Manager, Asset Allocation and Alternative Strategies
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.