The temperature was not the only thing that was hot this past summer as equity markets experienced sizzling returns around the world without any significant catalysts to explain the behaviour. The absence of any “bad news” might be the best explanation for the rise. Fixed income returns were also positive, albeit more modest.
Globally, economic growth remains soft and central banks continue to be accommodative. The International Monetary Fund downgraded expectations for economic growth in July and have been revising overly-optimistic forecasts downward for years now. One of the few bright spots associated with low economic growth is lower inflationary pressure which helps consumer purchasing power. About the only economic region in the developed word right now expressing some concern about inflation is the United States where we may see the Federal Reserve raise interest rates later this year. Then again, “expert” predictions for the timing of that event have been wrong for some time as well.
In Canada, there is very little chance of interest rates moving up any time soon. Inflation and economic growth remain modest, while unemployment continues to hover around 7% despite a chronically declining participation rate. The low interest rates have translated into low mortgage rates which have kept housing prices in Canada on the rise, most noticeably in the Vancouver and Toronto markets. In an effort to cool some of the pressure on house prices, the Federal government announced in early October that they would be introducing measures to reduce demand for both domestic and foreign buyers.
Looking forward, the most interesting developments that may impact markets over the next quarter may very well be what happens in the November U.S. election. The successor to President Obama will either be democrat Hillary Clinton or republican Donald Trump. While it is generally perceived that republican governments are more “market friendly”, The Donald might just be the biggest wildcard factor in U.S. Presidential history – who knows what will happen if this guy gets elected??? At the very least, it should be entertaining…
Here is a recap of market performance as of September 30, 2016*
| Asset Class | Market Index | Quarter | 1 Year | 3 Years | 5 Years | 10 Years |
| Fixed Income | FTSE TMX Canada Universe Bond | 1.19 | 6.31 | 5.97 | 4.38 | 5.23 |
| Canadian Equity | S&P/TSX Capped Composite | 5.45 | 14.21 | 8.00 | 8.05 | 5.29 |
| U.S. Equity | S&P 500 ($Cdn) | 5.10 | 13.15 | 20.65 | 21.89 | 9.01 |
| Int’l Equity | MSCI EAFE ($Cdn) | 7.71 | 4.42 | 9.05 | 12.48 | 3.50 |
* Performance annualized for periods greater than 1 year
During the quarter, we released a number of blog posts that may be of interest:
It’s Time to Ask the Financial Advice Industry Some Tough Questions by Andrew Kirkland
Are Mutual Funds Headed for Extinction? by James Gauthier
Canada’s Generous and Misunderstood Donation Incentives by Malcolm Burrows
If you ever have any topics that you would like to read about in our blog, or have any other questions or comments, please do not hesitate to contact us and provide your feedback.
Written by James Gauthier, Chief Investment Officer at Justwealth
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