2019

April Wrap-Up

Global stock markets continued their rally in April: in North America, the S&P 500 finished up 4.72% (in CAD) while the TSX Composite rose 3.22%. Market volatility was subdued as there was no negative news on the US / China trade negotiations during the month, central banks were largely out of the news and the Bank of Canada held steady on interest rates.

As markets had continued to reach new highs in April, we could conclude that investors have come to “expect” continued economic growth and a relaxed monetary policy vis-a-vis low interest rates with low inflation. At the same time, investors are willing to brush off mixed US corporate earnings while remaining optimistic about trade policy despite the increased likelihood of more global trade barriers, as Europe now seems to also be in Trump’s crosshairs. Perhaps what investors may be forgetting is that the good in the news about economic growth, inflation and monetary policy may already be reflected in equity prices.

  1. S&P500 top-line revenues peaked in Q3 of 2018 and have been drifting lower.

  1. Economic data is mixed (blue line in the chart below), yet the S&P500 had continued its increase in April.

3. Semi-conductor sales have a big impact on global GDP and are a leading indicator, as computer chips are a component of almost every household item (TV, microwaves, clocks, radios, washer/dryer, dishwasher) and in autos, computers, phones, tablets, smart watches, etc. Semi-conductor sales have been declining for the past year, yet the Philadelphia Semi-conductor Index is up approximately 35% YTD:

  1. Month to month semi-conductor sales fell 10% in February and 2% in March.
  2. Year over year sales fell 13% to end March 2019.
  3. The 3-month rolling average of sales for Q1 fell 15.5%.

4. Closer to home in Canada, April’s Manufacturing PMI came in at 49.7 (below 50 is recessionary, while above 50 means the economy is expanding). Having said this, April’s job reports were released today, and Canada posted its biggest job gains on record with 106,500 vs the 12,000 economists predicted.  This was a broad-based increase (many industries) and wages also grew, both suggesting the Canadian economy is likely to improve.

The current market environment is a reminder that equity markets are unpredictable, and a disciplined strategy is paramount.  Avoiding equities altogether leaves us vulnerable if markets continue to rally while overexposure can lead to anxiety during periods of market contraction.  Our approach has not changed:  We continue to hold quality names with strong balance sheets while maintaining a meaningful allocation to asset classes that are not correlated to public markets.  Should we see an equity market selloff, not only will this approach soften the landing, but it would present solid opportunities to pick up quality names at attractive valuations.

 

Daniel Popescu CFP, CIM, FMA, FCSI

President & CEO

 

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