“A society grows great when old men plant trees whose shade they know they shall never sit in” – Greek Proverb

Weekly Update – Market Turbulence Continues

Global stock markets experienced another tough week, culminating in the arrest of a top Chinese technology executive that drove another wedge in U.S. – China trade relations.

Markets peaked near the end of the 3rd quarter and have declined close to 10 per cent since then. There have been rallies where those losses were clawed back, but other weeks (like this one) where they are driven back down.

 

 

 

 

 

 

 

 

 

 

The global soap opera that has been the U.S. – China trade dispute has been the main driver of the volatility the past few months. Here is a timeline using sections taken from the Globe & Mail market report since October:

October 11: Growing tensions between Beijing and Washington. U.S. officials said they had charged a Chinese intelligence official with espionage. The Trump administration also moved to more closely scrutinize corporate deals by foreign investors in the United States, a step aimed primarily at China.

October 12: Trade figures from China on Friday showed China’s trade surplus with the United States hit a record high in September, providing a likely source of contention with Trump over trade policies and the currency

October 15: Over the weekend, China central bank governor Yi Gang said he still saw plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.

October 30: U.S. leads world equities higher on hopes of U.S. – China trade deal. Broad gains in the U.S. equity market turned global stocks higher on Tuesday after President Donald Trump said a “great deal” could be struck with China that would relieve fears of a growing trade war between the world’s two largest economies.

November 13: Canada’s main stock index opened higher on Tuesday on renewed hopes of resolving the ongoing trade dispute between the United States and China. China President Xi Jinping and U.S. President Donald Trump plan to meet on the sidelines of a G20 summit that is being held in Argentina at the end of November.

November 16: U.S. stocks moved higher, however, after President Donald Trump said China seemed willing to make a deal on trade and that the United States may not have to impose further tariffs on the Chinese goods.

November 19: Renewed tensions between China and the United States also weighed. At an Asia-Pacific Economic Cooperative meeting in Papua New Guinea over the weekend, the issue prevented leaders from agreeing on a communique, the first time such an impasse had occurred in the group’s history.  U.S. Vice President Mike Pence said in a blunt speech on Saturday that there would be no end to U.S. tariffs on $250-billion of Chinese goods until China changed its ways.

November 23: Investors will be focusing on the G20 summit in Buenos Aires, where U.S. President Donald Trump and his Chinese counterpart Xi Jinping are expected to hold talks amid a worsening trade dispute between the two countries that has weighed on financial markets and sparked fears of a global slowdown.

November 27: The S&P 500 and Dow edged higher on Tuesday after White House economic adviser Larry Kudlow said a meeting between President Donald Trump and his Chinese counterpart on Saturday was an opportunity to “turn the page” on a trade war.

December 3: Oil prices jumped by more than five per cent on Monday, after the United States and China agreed a 90-day truce in a trade dispute. China and the United States agreed during a weekend meeting in Argentina of the Group of 20 leading economies not to impose additional trade tariffs for at least 90 days while they hold talks to resolve existing disputes. A truce in the U.S. – China trade war boosted global stocks to their highest in roughly three weeks on Monday.

December 4: Canada’s main stock index opened lower on Tuesday, as investors turned skeptical of the chances of a breakthrough in resolving the U.S. – China trade dispute. Different dates from the White House regarding start of the three-month trade ceasefire and skepticism over an actual resolution in the agreed negotiating window dampened the mood.

December 6: Global stock markets slumped as the arrest of a top executive of Chinese tech giant Huawei in Canada for extradition to the United States accelerated fears of fresh tensions between the two economic superpowers.

Unfortunately, fundamentals like company earnings, GDP growth, labor data, (which overall are still healthy) play a lesser role in day-to-day market movements. Macro headlines get the lion’s share of the attention. Headlines like fiscal cliff, Greek debt, government shutdowns, Brexit, etc. Today’s headline is the U.S. – China trade conflict.

Even in this climate, there are several positive takeaways, among them:

1. Even at its peak, the current market cycle has not approached the “irrational exuberance” that pre-faced the DotCom or Financial Crisis selloffs. Most major investments are trading at reasonable valuations.
2. Most of the coverage centers around the U.S. markets. Other markets have not experienced the same growth in recent years. Canadian shares are trading at under 15 times their forecast earnings – the cheapest they have been in five years.
3. The selloff since early October has now left global equities at a roughly 15 per cent discount to their average trailing price earnings ratio over the past three decades.
4. Central banks rate movements have been much more gradual. In the 80s and 90s, the U.S. Federal Reserve accelerated market downturns by rapidly hiking interest rates to painful heights.

It is impossible to say whether we have bottomed out, or whether we are only halfway through a more pronounced correction. Only in hindsight will we have clarity on this. We may read intelligent opinions, but no one can guarantee market direction in the short-term.

Once again, here are the facts regarding 10 per cent corrections. Historically speaking, a 10 per cent market correction happens every 15 months. The average recovery time is eight months. There is no pattern or predictability to them. The simplest thing to do is to ride them out. If the past 100 years of investing is any indication, this pullback will pass, like every other one before it.

As always, feel free to contact us with any questions or concerns. We are happy to perform a full portfolio review at any time.

Weekly Update – By The Numbers

North America

• The TSX closed at 14,795, down -403 points or -2.65% over the past week. YTD the TSX is down -8.72%.
• The DOW closed at 24,389, down -1150 points or -4.50% over the past week. YTD the DOW is down -1.34%.
• The S&P closed at 2,633, down -127 points or -4.60% over the past week. YTD the S&P is down -1.53%.
• The NASDAQ closed at 6,969, down -362 points or -4.94% over the past week. YTD the NASDAQ is up 0.96%.
• Gold closed at 1,249, up 2.00 points or 1.71% over the past week. YTD gold is down -4.66%.
• Oil closed at 52.13, up 1.41 points or 2.78% over the past week. YTD oil is down -13.72%.
• The USD/CAD closed at 0.7509, down -0.0011 points or -0.15% over the past week. YTD the USD/CAD is down -5.58%.

Europe/Asia

• The MSCI closed at 1,965, down -76 points or -3.72% over the past week. YTD the MSCI is down -6.56%.
• The Euro Stoxx 50 closed at 3,058, down -115 points or -3.62% over the past week. YTD the Euro Stoxx 50 is down -12.73%.
• The FTSE closed at 6,778, down -202 points or -2.89% over the past week. YTD the FTSE is down -11.84%.
• The CAC closed at 4,813, down -191 points or -3.82% over the past week. YTD the CAC is down -9.41%.
• DAX closed at 10,788, down -469.00 points or -4.17% over the past week. YTD DAX is down -16.49%.
• Nikkei closed at 21,679, down -672.00 points or -3.01% over the past week. YTD Nikkei is down -4.77%.
• The Shanghai closed at 2,606, up 18.0000 points or 0.70% over the past week. YTD the Shanghai is down -21.20%.

Fixed Income

• The 10-Yr Bond Yield closed at 2.85, down -0.1600 points or -5.32% over the past week. YTD the 10-Yr Bond Yield is up 75%.

 

Sources: Advisor.ca, Globe Advisor

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.