2019 – What is ahead in the equity markets?

  • Stock markets have been strong for the first few months of 2019. US, Canadian and International stock markets continue to exhibit strength versus other asset classes.
  • We likely won’t see further US interest rate hikes this year. The Fed paused its interest rate hike program in March and indicated further rate hikes are unlikely in 2019.
  • Governments and central banks have increased policy stimulus. Markets have responded favourably to policy makers’ efforts to boost the economy.
  • There were no changes to our sector rankings in March. This indicates that the current equity bull market remains broadly based across cyclical, defensive and interest-sensitive sectors
  • Recent data suggests that China’s economy is starting to bounce back from its recent slowdown. US-China talks dragged on in March but China-sensitive markets, including Asia Pacific indices and copper, continued to climb on anticipation of a deal being reached.

We continue to believe that:

  • Stock markets provide a solid opportunity for long term growth
  • Risk management is critical for peace of mind
  • Pullbacks or corrections are inevitable
  • A proven strategy that reduces volatility will allow many investors to sleep at night and stay the course for long term wealth accumulation

We plan to roll out several new portfolio strategies in the coming months that weren’t available to us at our previous firm. These will help us further improve risk management.

What is ahead for the next 3-5 years?

In the age of the internet, there is no shortage of opinions about what the future holds. We follow a wide range of analysts – from the most bullish to the most bearish. They all have points of interest and scenarios one should at least consider. We also use objective technical analysis to provide a different perspective from the subjective views espoused by some analysts.

Leon Tuey, a former guru at BMO Nesbitt Burns and RBC, is probably the person we follow the most. While other pundits garner more headlines, Mr. Tuey has a habit of being right much more often than he is wrong. Leon believes this secular bull market has years left to run.

As Leon sees it, there are three legs to every bull market:

  • The first leg of the bull market is interest rate-driven. It began in October 2008 and ended in May of 2015, when stocks hit what were then new highs.
  • The second leg began in February 2016 and is earnings-driven as the economy improves. He expects it to be the longest and strongest leg of all. If this is correct, we should have another four-plus years in this “bull run.”
  • The third leg is more speculative as euphoria takes hold. This will be an exciting time to be in the markets, but it will also require a more nimble approach to lock in gains.

Keep in mind that for the past 100 years or more, the more severe the economic downturn, the more powerful and enduring is the subsequent bull market.  When the U.S. was faced with financial crisis in 2008, the Fed eased financial policy much more aggressively than ever before, and they are staying accommodative for much longer than normal. This bodes well for markets in the coming years.

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