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Although market participants are quite worried about the outlook for 2019, our contrasting nature makes us move towards a positive outlook, especially after factoring in some very convincing reviews both in Canada and abroad.
It should be noted that we are seeing three key factors that we may consider to have a significant impact on investor portfolios.
Central bankers are no longer working badly
Central banks, especially our own Canadian Bank, have been too aggressive in our view, given their unfortunate view of the economy and interest rates. At first glance, this approach makes sense given how low the unemployment rate, but the different story is about the lack of inflation and the recent liquidation of liquidity, which occurred with the rapid inversion of some yield curves.
As a result, we quickly moved from a strong economic perspective to a worrying downturn. In general, we believe that these events will hold back restrictive monetary policy, which is great news for the markets, as evidenced by their reaction to the recent Fed update.
For example, Canadian 5-year bond yields are compressed by just over 20 percent from nearly 2.5 percent to nearly 2 percent. In the US, 10 years dropped from 3.2 percent to 2.55 percent before rising slightly to 2.7 percent. The stock markets have also experienced a nice rebound as the S&P 500 has set its best starting year for over 13 years.
Oil prices can say a lot
Every year there were oil prices with a commodity that shipped out the worst in October 2015, and in 2018 closed 26.5 percent. oil competition. Fortunately, the Provincial Government of Alberta intervened and forced these extra barrels out of the market, providing a temporary solution.
However, drama led to massive sales in Canadian oil stocks, accounting for about 20 percent of S & P / TSX. As a result, the index is now the lowest P / E over 6 years and the biggest discount on S&P 500 since 2002.
The good news is that oil prices will resume to start the year, which is a positive sign for what is ahead. In particular, WTI crude oil is now over $ 50 a barrel and more than 20 percent of the December US-China trade talks and Saudi Arabia's output cuts.
The oil rebound is important because oil prices are a major indicator of global economic health. Therefore, a strong crude oil environment will cause concern for the downturn.
Trading wars and currencies
The Canadian Dollar won last year by returning its earnings in 2017. Overall, we estimate that it lost 7.5 percent last year against the US dollar. As a result, it provided some negative protection to those who own US price assets, including stocks. For example, US stocks lost almost 4 percent of their currency base, but ended up in a somewhat positive area, adjusting to Canadian dollars.
We see no reason why the Canadian dollar will still not depend on the way it has been in the last two years, and the transition to upward and downward trends depends on the state of the oil market.
However, we have still created the Canadian energy crisis with the federal government, moving forward with a punitive and restrictive bill C-69 that could exacerbate the problem. As a result, any upward trend in world oil prices may not be reflected in the currency so far.
Finally, we expect some clarification about what is happening in China and the US. This is a trade dispute this year, which could be beneficial for Canada, which is in the midst of a very difficult situation.
Martin Pelletier, CFA, is a portfolio manager and OCIO TriVest Wealth Counsel Ltd, a Calgary-based private client and institutional investment company specializing in discretionary risk-managed portfolios, as well as investment audit and oversight services.
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