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2018...Show us what you got!

Wishing everyone a strong and healthy 2018!  

Joe and I will be busy these first few weeks in January meeting with many of your Portfolio Managers and attending various industry events where we’ll get a chance to listen to some of the smartest people in the industry.  Just this past week I had the privilege of sitting in on the Economic Club of Canada’s 2018 Economic Outlook Forumwhere we heard from the top Economists from the big 5 Banks give us insight into where they see markets headed in 2018.   Throughout the rest of the year we’ll be attending many other conferences too – in Toronto, New York, Boston and Chicago to ensure we’re always performing the best due diligence possible on the various companies we entrust with your money.

 

And it doesn’t stop there.  The first quarter of the year is always a busy one for us as we meet with many of you over the next few months too.   It’s always a good time to review your portfolios and to discuss any adjustments that need to be made for the upcoming year.     Many clients have been taking advantage ONLINE BANK TRANSFERS, choosing to make their RRSP contributions or topping-up their Tax Free Savings Accounts (TFSA) online rather than rushing to meet in January or February to contribute.  If this is your preference too, give us a call so we can confirm what your contribution room is first so that you’re not going over your limits.  We can then always meet at a later date that works better for you.

 

What did 2017 bring us?

Our American neighbours got themselves a NEW President when they swore in Trump early in the year, while Canada took one step closer to legalizing marijuana.  Not sure which event brought on more controversy last year??!?   I’d like to think that regardless of what side of the marijuana debate you find yourself on, I bet you’re just glad to be on this side of the border right now.

 

Market-wise, the year started off well until our Canadian dollar creeped up to above 82 cents against the US dollar over the summer.  Why is this a bad thing? Well, for starters, for every percentage point the CAD$ gained in strength against the USD$, we saw our global investments decline by the same amounts.  This meant that even though global markets were positive and posting good gains, your investment statements left a lot to be desired!

 

For example:

In the first week of September the CAD$ was up 10.5% against the USD$.   The DOW JONES was up 10.3% for the year in USD$ terms, however when translated back into CAD$ we were now -0.2% (10.3% – 10.5%) for the year because of the strong Canadian dollar.  That big difference left some concerned and wondering whether we should be moving our investments back onto Canadian soil to avoid the currency fluctuations like these.  That theory would’ve worked except that the Canadian S&P/TSX itself was actually down -2.0%  at that same time, proving that the Canadian market was definitely not a better place to have all of our wealth.    The moral of that story is that the CAD$ has no business being that strong and that we knew the increase was temporary.   Fast forward to today and the CAD$ is back down closer to where it belongs at 78 cents against the USD$ and your investment statements are making you smile again.

 

We also saw growth in the Canadian economy over the last quarter which surprised many people.   This means that inflation is being tightly watched.  Government sets the interest rates to help combat inflation, so wait for rate hikes in 2018!

 

We saw the government tightening the lending rules and making it harder to qualify for mortgages because they are worried Canadians are getting into too much debt.  The Real Estate market stalled and instead of bidding wars, we actually saw prices in parts of the city actually come down.    The lesson there being that even the Real Estate Market can be a risky place to be in.

 

And, Trump made it through a full year in office! Imagine that!  President Trump has managed to take credit for everything from the great stock markets we saw this year to bringing back Christmas! But I digress…

 

All in all, 2017 was everything we expected it would be – a volatile year with many opportunities.  Many investors were expecting a great correction in the markets so they decided to sit on the sidelines and wait.  They’re still waiting. In the meantime, markets around the world went up as much as over 20% in 2017.

 

What’s expected in 2018?

There’s good news on the horizon for 2018…  

  • There are still no signs of a recession which would bring a slow-down of world economies and in turn cause markets to drop.  Equities (stocks) are expected to outperform Fixed Income (bonds) over the next 12 months.
  • We believe that the International  & US economies will continue to lead the world in growth over Canada. Global trade continues to be strong and so this is why we will continue to focus on these markets over our Canadian market when managing your portfolios.
  • Volatility will remain alive and well in 2018.  This makes active portfolio managers very happy as it means that they will have plenty of opportunities to invest our money in good businesses, at better prices then they might be today.   Market corrections are not always a bad thing.  The average market correction is 13% and happens 2-3 times a year.  We haven’t seen a correction since 2016!

 

What are some of the Risks out there?

  • Geopolitical risks are always top of mind – North Korea, China, Trump & Russia just to name a few.  These events would undoubtedly shake up markets, but we’ve been here before…
  • Elections in Italy & Brexit will be watched closely in 2018.  We’re also keeping an eye on the Middle East and the social unrest there.  The recent protests in Iran by the lower/middle class can spell trouble for oil prices which in turn affects us all.
  • Interest Rates – they’re on their way up! This is done to intentionally slow down a hot economy and to keep inflation under control.  On the flip-side, higher interest rates also tends to slow growth in the markets.  It’s expected that the Bank of Canada will raise rates twice (2X) this year while the US Federal Reserve will raise rates three times (3X).
  • What will this mean for our CAD$...We should see our dollar fall against the USD$ and trade in the range of $0.72-0.76 this year.  We should also see our dollar lose strength against the EURO as well, so for those of you planning to travel this year, you may wish to convert some currency now while the CAD$ still sits high.

As always, we are only a phone call or email away.  If you have any questions, concerns or wish to set up a meeting, be sure reach out to us.   In the meantime, stay warm!

 

 

 

Kelly Fagundes is a Senior Financial Advisor at Manulife Securities Incorporated and can be reached for further comment at kelly.fagundes@manulifesecurities.ca and or by phone at 416 259 8222

Call 1-877-676-6686