Market Update - April 2017
Considering the year began with such uncertainty, equity and fixed income markets performed exceptionally well in the first quarter. Investors overestimated the magnitude of market volatility that would ensue from an Obama to Trump transition of power and markets shrugged off the political drama and took equities higher.
Challenges in the quarter
This past quarter exemplifies what investors should consider with regard to their portfolios. There are many sentimental reasons to fear the stock market, including recent examples like Brexit, Grexit, the Fiscal Cliff, the Debt Ceiling, the election, and the budget. Markets can be swayed over the short term by daily headlines. Equity markets can move up or down for any and all reasons on a daily basis. However, over the long term, market valuations tend to return to their fundamentals—and the fundamentals over the past two quarters have justified markets moving higher.
Starting in Canada, oil prices seem to have stabilized through the first quarter to nearly US$50 per barrel, bringing less volatility for Canadian stocks. The S&P/TSX Composite Index gained 2.4 per cent factoring in dividends through the quarter. Oil prices are expected to remain near their current level, which has multiple implications. First, stable oil prices are positive for the Canadian energy sector and Canadian stocks overall. Secondly, as oil prices remain a strong influence on the Canadian dollar, stable prices should translate into a stable dollar with an average exchange rate near its current US$0.75.
The United States
South of the border, the newly appointed Trump administration added a new element to conversation–and not just for talk shows! Putting politics aside, companies are reporting better year-over-year results on sales and earnings. Unemployment continues to fall. Economic growth continues to improve. In short, the U.S. economy is on the right track. And with it, come prospects for equities through the remainder of the year. The benchmark S&P 500 Index gained 6.1 per cent in the first quarter including dividends, in U.S. dollar terms, or 5.3 per cent, in Canadian dollar terms, reflecting improvements in company results.
Overseas markets showed healthy gains with international equities up 6.6 per cent in Canadian dollars as measured by the MSCI EAFE Index. Brexit considerations aside, the European economic outlook has improved, akin to that of the United States. On the other side of the world, Asia is showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.
Central Bank Policy
This quarter marked the third time in two years, and since the Great Recession, that the U.S. Federal Reserve raised its benchmark interest rate. The Bank of Canada didn’t and hasn’t followed suit as the Canadian economy hasn’t performed as strongly as the U.S. economy. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another two or three times this year. The environment is meeting the conditions of low unemployment and stable inflation, allowing the Fed to act.
We continue to believe the U.S., Canadian and international economic environment will improve over what it was a year ago but it bears repeating that a positive economic environment doesn’t necessarily mean better returns. While we may be confident that equity markets will deliver another year of positive returns, market volatility is likely to remain through much of 2017—driven mainly by headline news and politics. We continue to advise a balanced approach to asset allocation matched to your individual goals.
As always, if you have any questions about the markets or your investments, I'm here to talk.
The value of advice
In an effort to stay healthy, you make seeing your doctor a priority. Your doctor knows your medical history and, if there is a problem, can recommend a course of treatment. The same concept applies to your finances – regular checkups with an advisor can go a long way towards improving your financial health. Whether your goal is to reduce debt, buy a house, save for retirement or simply pay the bills, you don't have to go it alone.
Regardless of your stage of life or amount of wealth, you can benefit from the professional counsel and services of an advisor. In fact,71 per cent of advised households started working with an advisor when they had less than $50,000 in investable assets.1 Milestones such as buying a first home, starting a new job or having a child are all good opportunities to address new financial needs and begin working with an advisor.
Start with a consultation
An advisor starts by understanding your objectives and doing a thorough analysis of your complete financial situation. Next, he or she will work with you to put a strategy in place to help reach your goals. A comprehensive plan allows you to balance today's needs with your goals for the future, easily adapt to changes in circumstance and plan ahead for emergencies, as well as helping you be in control of your financial well-being.
An advisor may be able to help by doing some or all of the following:
- Creating a disciplined savings strategy including cash flow planning and debt management
- Designing and implementing a customized investment strategy
- Proposing tax reduction strategies
- Facilitating will and estate planning
- Reviewing and recommending insurance products, including life,disability and critical illness
- Providing access to a network of professional resources such as accounting and legal services
A prescription for long-term success. As you develop your plan, it's important to be realistic about your expectations. An advisor won't magically make your debt disappear or guarantee double-digit returns on your investments. He or she will, however,provide ongoing support and guidance so you can remain focused on your goals through the ups and downs life throws your way.The Value of Advice Report 2012 by the Investment Funds Institute of Canada found that households that receive financial advice are:
- 1.5 times more likely to stick to theirfinancial decisions
- More confident about theirfinancial future
- More than twice as likely to participate in Registered Retirement Savings Plans, Registered Education Savings Plans and Tax-Free Savings Accounts
As you can see, those who work with an advisor have a clear advantage –both in terms of increased financial benefits and level of confidence about their overall finances.
Regular checkups: Your financial well-being depends on them
Getting started early on with an advisor and scheduling routine reviews can provide a considerable financial advantage in the long run. Be sure to ask questions and get the information you need to feel a high level of trust and comfort. After all, the healthiest and most rewarding relationship is one that will benefit you not just today, but well into your future.
1 Claude Montmarquette and Nathalie Viennot-Briot, Econometric models on the value of advice of a financialadvisor, CIRANO, July 2012.