September 2019

MARKETS SURPASSING RECORDS

Canadian markets continued to show resilience to a global slowdown as the S&P/TSX hit a new record high. At the high, the index was within striking distance of 17,000 points, nearing a threshold that was unexpected at such a late stage in the business cycle. The Canadian energy sector rallied later in the quarter due to attacks that temporarily shut down production at a Saudi oil refinery, helping to boost Canadian producers as investors expected higher profit margins if there was a prolonged outage. The shutdown was equivalent to 5% of global output, although production was brought fully back online earlier than expected.

The Federal Reserve had to step in to add liquidity to the money market through a ‘repurchasing agreement’ where reserves were added to the money supply to cover redemptions of money market securities. The program was necessary to ensure liquidity remains in the monetary system. To further support this liquidity and “easy financial conditions”, it is expected that we’ll see more interest rate cuts from the Fed as they attempt to prolong the economic growth cycle.

The world’s two largest economies, the U.S. and China, have agreed to return to the bargaining table in October. Economists expect the two countries to come to some form of agreement before the U.S. 2020 elections, with expectations for the U.S. to make further concessions. The impact of the tariffs and the ongoing speculation has started to erode some of the consumer confidence which has so far withstood much of the unfavorable headlines permeating the news cycle.

Contributors to Returns:

• PIMCO Monthly Income rebounded from the previous month to be the largest contributor to our Fixed Income sleeve. We are confident in their strategy, which includes an overweight to short-term, low-duration bonds.
• Our active decision to overweight our exposure to Canadian equities added to monthly returns.

Detractors to Return:

• The potential of higher tariffs on Chinese imports impacted the US tech sector, resulting in a weak month for ARK Innovation ETF. We continue to maintain our position that technological disruptors are key for long-term outperformance.
• Gold came off of August highs as overall sentiment improved in global markets. The precious metal will continue to have a place in our portfolio as a hedge.

All performance numbers sourced from Morningstar Direct.