Market View

Quarter 4, 2019

What WorkedWhat Didn't
Gold StocksHong Kong Stocks
Technology StocksValue Stocks
Utilities StocksCannabis Stocks

Equity Markets
Fourth Quarter
% Change (in Cdn$)

Calendar Year 2019
% Change (in Cdn$)
S&P/TSX Composite3.2%22.9%
S&P 5007.0%25.2%
MSCI/EAFE5.8%12.8%
MSCI/EM9.2%9.9%
TSX Energy7.1%21.7%
TSX Financials1.0%21.4%

Bond Markets
Fourth Quarter
% Change (in Cdn$)

Calendar Year 2019
% Change (in Cdn$)
FTSE Canada Universe Bond Index-0.1%7.7%

December 2019

Well, it’s that time of year again. Forecasting time.

Economic, market and investment strategists gaze into their crystal balls and predict the future. What will interest rates be in 2020? Where will the S&P 500 close at the end of 2020? Those are just annual predictions. Given that we are at the start of another decade, there are also forecasts about what this coming decade will bring.

When it comes to forecasts and predictions (especially those about the future), the right answer is that nobody really knows. For example, a business article from February 2019 was entitled, “The case for why 2019 will be a bad year for markets and 2020 will be even worse”. First, 2019 was a pretty good year for markets and second, nobody really knows what 2020 will bring.

Forecasting how the economy and markets will behave can be very challenging given the many variables we have to predict. For example, when trying to figure out what the Canadian economy will do, there are just too many moving parts to get the prediction right. It starts with, how will the global economy do? Where will interest rates go? What will commodity prices be? And the list of questions goes on and on. Each of these questions have many variables and moving parts of their own.
The New Year does, however, provide a reminder to review our circumstances, including those financial. The value in some of these forecasts may be in using the more extreme ones to test our financial plans. For example, if interest rates rise significantly, does our financial plan account for that? If the Canadian economy slows significantly, does our financial plan account for that? We must, and we do, ask ourselves these questions in order to ensure that financial plans and client portfolios can weather the challenges that the financial world may throw at us. Please feel free to call us at any time if you would like to discuss your financial thoughts.

On an investing note, interest rates have declined substantially. Today, the interest that you receive from having cash in your account is similar to what can be achieved by investing in longer-term bonds. If we invest in longer-term bonds, given the low level of interest rates, there is the potential for capital appreciation if interest rates continue to decline (they may) but there will be substantial capital losses if interest rates rise meaningfully. This risk-reward is something we want to be very careful about. As a result, you may see higher cash balances in your accounts, and we are treating these cash balances as fixed income in today’s low interest rate environment. In addition to investing cash in money market funds, we may invest in other types of savings products.

Higher cash balances also serve another purpose – insurance. When markets bounce back as they did in 2019, this insurance has a negative value. However, when insurance is needed (like in late 2018), we were happy to have had it.

Periodically, it is interesting to look back at returns over time. Now is an especially relevant time as we enter another decade. The table below details the TSX Composite Index’s annualized returns including dividends for a few select periods:

Bond Markets
Fourth Quarter
% Change (in Cdn$)

Most recent two decades
(January 1st, 2000 to December 31st, 2019)
6.3%

Most recent decade
(January 1st, 2010 to December 31st, 2019)
7.0%

Most recent decade
(July 1st, 2018 to December 31st, 2019)
6.5%

Despite all the ups and downs, returns over the various time periods have generally hovered between 6% and 7%, and that’s whether we look back over one or two decades or just the last 18 months. Despite 2018 being a tough year for the market and 2019 being a great year for the market, for the 18-month period from July 1st, 2018 to December 31st, 2019, the TSX Composite returned 6.5% annualized including dividends, right in line with long-term averages.

We want to thank all of you for being our clients as well as for referring new business to us. We appreciate the trust you have placed in us as we keep it front and centre each and every day.

We wish all of you a healthy and prosperous 2020!

Other Markets

Fixed Income  December 2019  December 2018
Cdn 91 day T-Bills 1.67% 1.67%
U.S. 91 day T-Bills 1.52% 2.42%
Cdn 10 year Bond 1.64% 1.95%
U.S. 10 year Bond 1.92% 2.69%
Commodities (in U.S.$)  December 2019  December 2018
Oil 61.06 45.41
Natural Gas 2.19 2.94
Gold 1523.10 1281.30
Currency  December 2019 December 2018
Cdn/USD 1.3018 1.3645
Cdn/Eur 1.4566  1.5642