Up until the end of April, stock markets have been strong. Any losses from the last quarter of 2018 have been surpassed, and markets were at record highs in April. May wasn’t as good, but June has started out well.
That said, we are clearly in the later stages of this economic cycle. In the US, this is currently the second longest economic expansion post World War II and as of July, will be the longest expansion in history. Although the play is not over, we are clearly in the last act.
There are no current signs of recession, which is where stocks go down longer before going up again.
According to Doug Porter, Chief Economist at BMO Financial Group, it is clear that the single biggest risk to the global economic outlook is the unfolding trade war between the US and China. It is still possible they can reach a limited deal owe the next 3-6 months. He believes we are settling in for a much longer cold trade war between the two. However, Porter doesn’t see it as a doom and gloom scenario if the deal is not made. If the US applies the 25% tariffs and China subsequently retaliates, Porter could see a 1% dip in Chinese GELP growth and a 0.5% cut to the US GDP growth over the next year. He predicts 2019 GDP growth in Canada and th US that is 0.25 to 0.5% less than what we saw in 2019. Unemployment is at 40-year lows in both countries. Inflation pressures are not a serious concern.
How can we continue to be prudent with managing our investments?
We can continue to:
- Invest in high quality companies
- Invest in companies that are growing their dividends
- Be diversified in our investments i.e. own some stocks, some bonds, some cash options (i.e. term deposits, some alternatives i.e. real assets
The markets as of May 31st were:
TSX (Canada stocks) up 12%, down from the high of 16% in April
S&P500 (US Stocks) up 9.8%, down from a high of 17.5% in April (which was 15.6% in Canadian $)
Source: TD Weekly Market Report TD Wealth Management May, 24-31, 2019