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Focus on the past month

Overview of global equity markets*

  • The benchmark index of the Canadian stock market, the S&P/TSX, rose 1.3% in September.
  • U.S. equity markets ended the period in positive territory, with the S&P 500 and Nasdaq indexes gaining 1.7% and 0.5%, respectively.
  • Most international stock markets performed well, with the EAFE Index up 2.5%.
  • Emerging market stocks climbed 1.3%, while Chinese equity markets retreated 0.4%.

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

Key events

  • Unsurprisingly, the U.S. Federal Reserve (Fed) announced another reduction in its benchmark rate in September. The Fed chair said he was prepared to intervene to support U.S. economic growth without, however, confirming that a further rate cut was planned for October.
  • Job creation was weaker than expected in the United States, but the unemployment rate fell while wage inflation slowed. The Purchasing Managers’ Index was also lower than forecast, which shows a real contraction in this sector in the U.S.
  • On September 24, the Democrats announced the opening of an impeachment investigation of President Trump. The U.S. Congress has been paralyzed since and this situation is generating uncertainty.
  • In Canada, the Consumer Price Index was up 1.9%, in line with expectations, while retail sales were lower than expected.
  • The price of oil saw some major swings during the month, first rising in response to the attacks on Saudi Arabia’s oil facilities and then falling when Saudi oil production was quickly restored.
  • 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.
  • The Brexit crisis continues, with discussions to avoid a no-deal exit of the U.K. from the European Union at an impasse as the October 31 deadline approaches.

(Source : Canaccord Genuity)

Performance of our funds

During the month of September, our dividend-oriented funds and portfolios outperformed our growth-focused funds and portfolios. Our growth funds (Canadian Equity, Global Equity) did not do as well in the Morningstar ratings, which had a negative impact on the performance of two of our portfolios that hold these funds (Balanced, Balanced Growth).

As for our fixed-income portfolios, they all added value relative to their benchmark indexes.

Over the long term, our FDP Balanced, Balanced Growth, Balanced Income, US Equity and Global Equity Portfolios each maintained a very good position (four stars) in the Morningstar rating system.

Our strategic monitoring

Main risks

Here are some risks which could hinder economic and market growth over the next few months.

  • The investigation launched as part of the procedure for the impeachment of President Trump could increase the level of investor concern and market volatility.
  • If the resumption of trade negotiations between the United States and China in October results in another failure, the already evident slowdown in U.S. manufacturing would worsen and the global economy would contract more.
  • The possibility that the new trade agreement between the United States, Mexico and Canada (USMCA) will not be signed due to paralysis in Congress and the Brexit saga are other factors that will have an impact going forward.
Fundamental indicators

Global Purchasing Managers’ Index

The decline in this index shows that the manufacturing sector continues to deteriorate in the United States. Since this trend is seen worldwide, we can conclude that this sector is contracting. Non-manufacturing activity continues to grow, but has weakened recently. In these conditions, the likelihood of a recession occurring in 2020 increases.

Our strategies

We are maintaining 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.

The current global economic and political environment is giving rise to various events that could slow or accelerate the pace of global growth. In this polarized context, we prefer to invest more prudently.  Our weighting of Canadian, U.S., emerging market and EAFE stocks is therefore neutral, although we are maintaining certain regional and style biases in our equity holdings.

François Landry, CFA
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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