February 2019: Portfolio Management Team Update

Elvis Picardo

February 6, 2019

Market & Economic Environment: Investors worldwide heaved a collective sigh of relief as global equities rebounded strongly with their best January performance in 30 years, after a December plunge that had capped the worst year for stocks in a decade. The TSX surged 8.5% in January as all 11 of its sectors advanced, led by the health care (+43.2%), consumer discretionary (+10.6%) and energy (+10.6%) groups, while defensive sectors such as consumer staples (+3.4%), communications services (+4.5%) and utilities (+6.1%) lagged the index. Health care gains were led by soaring marijuana stocks, while the energy group benefited from an 18% rebound in crude oil – its biggest January advance on record – and a sharply narrower price differential between global oil prices and the local Western Canadian Select benchmark. The Canadian dollar rose 4% against the USD, the best performance among G-10 currencies. In the U.S., the S&P 500 and Dow Jones Industrial Average recovered most of the losses inflicted by their worst December performance since 1931, with gains of 7.9% and 7.2% respectively last month. The tech-heavy Nasdaq Composite fared even better with a gain of 9.7%, while the small-cap Russell 2000 index surged 11.2%. European markets also posted robust returns despite the ongoing Brexit drama. Emerging markets headed higher, led by double-digit gains in Argentina, Turkey, Russia and Brazil. (Data Source: FactSet)

Our Strategy: The global stock rally is being fueled primarily by optimism that major central banks will step back from tighter monetary policy, given that one of the major reasons for the market carnage in Q4 of 2018 was concern that the U.S. Federal Reserve could go too far in raising interest rates. Softer economic data has the Bank of Canada and European Central Bank on hold in terms of interest rates at present, while the Federal Reserve’s announcement on January 30 underscored the remarkable reversal in its monetary policy tilt to a dovish bias. Notwithstanding the encouraging start to 2019, it should be noted that some major risk factors from last year persist, such as an escalating trade war between the U.S. and China, a messy Brexit, and a slowing global economy. Although the Portfolio Management Team (PMT) is guardedly optimistic about the outlook for 2019, it continues to adopt a cautious approach and expects to maintain its defensive positioning for client portfolios.

Please contact any member of the PMT, if you have any questions or concerns regarding your accounts.