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Influence of Trump’s Delays in policy action. The Trump administration has enacted relatively little public policy change bearing significant economic implications. The market expectations for change under Trump have diminished from “immediate and radical”, to “delayed and diluted”. Performance expectations remain similar, but less extreme than originally predicted. Among other things, this reassessment reduces the level of risk in International Equities, though the risk remains considerable.
US Market looking stretched beyond fundamentals. We are looking for less growth from the US markets than we’ve seen in recent months. Corporate profits and economic strength continue at a healthy pace, though investors are looking at US positions as a “fair price”, rather than the “good prices” seen elsewhere in the world.
US Dollar’s strength may be softening. May and June were difficult months for the US dollar, which lost ~6.1% against the CAD from May 4 to June 29, lowering the value of Canadians’ US holdings. Clearly USD-negative factors are weighing in, though it is exceedingly difficult to forecast the direction moving forward. The possibility of US$ weakness has grown. For Canadian investors, this and the preceding point suggest an opportunity to take some recent profits from our US positions.
Downside Risks continue to evolve. While China’s economic slowdown and potential fracturing of the European Union seem to have moved to the “back burner”, our business growth-cycle is old, and the world stage is loaded with potentially dramatic geo-political risks, including China’s Government intervention in monetary and fiscal policy, and ongoing tensions between the US, North Korea, China & Russia. Downside risks remain a significant concern for a conservative or late-stage investor.
Interest Rate debate continues. US Fed has applied a few rate increases already. Bank of Canada has stopped musing about rate cuts, which many are taking as an indication of coming rate hikes. An increase is far from guaranteed in the short-term, but a small increase is likely within the next year. It would be a good time to review a variable mortgage, and consider the implications of a rate increase. (UPDATE – 12-JULY-2017: The Bank of Canada has increased the overnight-rate +0.25% to 0.75%. This should shortly translate into increases on variable mortgages, lines of credit, and similar.)
The Canadian Equity Market followed Oil in a steep fall. Starting around May 20th, Oil prices dropped over 17% by the end of June., for -8.8% in Q2. Canadian markets participated in this drop, but not dramatically, posting a -2.8% drop to end Q2 at -2.4%.
My Benchmarks have moved. I’ve adjusted my benchmark allocations (a tool used to build all of my client’s portfolios) with a couple of minor adjustments to US and International Equities. Clients will be advised of any recommended adjustments through their regular review. Feel free to contact me at your convenience if you have any questions or concerns about your own portfolio.