Market Outlook

Changing tides - Third Quarter 2016

2016 has been a year of surprises. Oil traded at $26 a barrel, the Canadian dollar touched 68 cents. China weakness sidelined the Fed, the UK voted to leave the EU. Oh, and Trump is actually running for President. Sure, lots of bumps along the way but as we transition through the summer doldrums, markets have actually been rather kind. It has been nearly impossible to lose money in bonds, equities are a bit mixed but have been rather pleasant in North America. With a little less than half a year to go in 2016, let’s share our thoughts on what might surprise us in the coming quarters.

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Is it safe to come out now? - Second Quarter 2016

The first quarter of 2016 may be worthy of an Oscar. It started with such high hopes after a dismal 2015. Those hopes were crushed early by the tragedy of oil falling to $26/barrel, which led to credit concerns spreading from the energy industry to the largest of banks. Yes, there was even chatter of the commonalities between the mortgage bust of 2007/8 and pending bust in energy debt. But instead of a bear emerging, like the one that tried to eat DiCaprio, something else happened. Softer economic data caused the Fed to back off on talking about additional rate hikes, leading to U.S. dollar weakness and a rise in the price of oil. After all that, credit concerns started to dissipate and the markets came roaring back.

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So this is what a late bull phase feels like - First Quarter 2016

2015 didn’t end well and 2016 started off even worse. Welcome to the late bull phase: lots more volatility, divergent monetary policies and narrowing market breadth. There is some good news though with the U.S. economy continuing to march along as Europe and Japan show signs of improvement. China and other emerging market uncertainty counteracts some of this good news, but we do not seem to be on the precipice of something terrible. The coming quarters will continue to be choppy but there will be some great opportunities.

Clearly, it is a time to be tactical. 

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The Great Reset - Fourth Quarter 2015

Global equity markets, including Canada and the U.S., ran into a correction over the past couple months that has clearly heightened investor concerns. Continued deceleration of economic growth across emerging markets and the subsequent hit to commodity prices is a big contributor, as is the continued uncertainly around when the Fed will begin to raise interest rates. This correction, while painful, is helping reset valuations and address some of the excesses in the market place.

Given that the majority of economic data continues to point to expansion, albeit slow, this reset may lay a foundation to help markets move higher in the coming quarters.

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Passing the Baton - Third Quarter 2015

Markets have been flat so far this year, largely due to wrestling matches with a Grexit, bubbles in China, soft economic data and Iran dealings. While none have sounded the “all clear” signal, all have made significant progress over the past month. If these ‘macro’ factors fade from the market’s perspective, what is next? We believe all eyes will affix not just to the timing of a U.S. Federal Reserve rate hike, but to bond yields that have been on the rise. The markets have become partially reliant upon low yields and dovish monetary policy. As the liquidity lift softens, making the transition to more fundamentally driven markets may prove bumpy.

Passing the baton is never easy.

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The U.S. zigs, Canada zags - Second Quarter 2015

With the U.S. Federal Reserve zigging while the rest of the worlds’ central banks zag, we are witnessing some more volatility in the markets, consistent with the later stages of a bull market. The Bank of Canada surprised everyone in January and put Canada in line with the world, as opposed to the USA, onto easier monetary policy.

We are watching markets perform well, and yields drop precipitously in most countries, but are sticking with our outlook from the beginning of the year, as we expect the results of these easy policies will start to show themselves in Q2 and Q3 of this year.

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The Year of Divergence - First Quarter 2015

In 2015, we believe the markets are transitioning into the Late Bull phase of the current market cycle that started six years ago – how time flies! But don’t fret just yet as the Late Bull phase tends to last for a while and often comes with outsized returns. There is no doubt that the current cycle has followed a flatter and slower trajectory than the norm, one of the lingering effects of deleveraging, but this bodes well for a longer Late Bull phase.

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