Q2 Market Commentary

30 June, 2017

Although off from the recent peak valuations from earlier in the quarter, your portfolio has still advanced 0.8% from Q1 (March 31, 2017).

The primary trend for the U.S. market as well as the other major developed regions of the world such as Western Europe and the developed part of Asia continues to be upward. The Canadian stock market as measured by the TSX has entered into a correction that has seen its value decline by about 5%. Whether this correction ends here or continues further remains to be seen. Given the relative weakness of oil prices, and American investors concerns about the potential for housing prices having a negative impact on Canadian banks, I suspect the TSX has the potential to decline another 2-4% before stabilizing. Generally speaking, our client portfolios do not have significant exposure to Canada’s stock market, the S&P/TSX Composite.

 

High Yield bonds are also in a primary uptrend in spite of recent volatility. Investment grade bonds, or traditional bonds, are currently in an intermediate sideways pattern and have entered a shorter term correction. This is likely due to the expectations for rising interest rates.

The S&P500, the index that measures the performance of the broad U.S. stock market, has given up some ground lately due to weakness in the large tech stocks such as Apple, Google and Amazon, which are off about 5% since early June. However the impact of this decline to the broad market has only been a couple of percentage points which can be classified as normal volatility.

We are now in the unfavourable season for the stock market so I expect some net sideways movement until late October.

The Trump growth-oriented legislative agenda is currently stalled and so this has taken some of the wind from the sails of the U.S. and global stock markets.

The Canadian dollar has risen recently on speculation of an interest rate increase by the Bank of Canada and on a short-term bounce in oil prices. The USD-CAD relationship continues to favour the USD for now. We expect this currency relationship to fluctuate in either direction +/- 5% for the foreseeable future.

Recent strength in the Canadian dollar is negatively affecting your portfolio value. As noted, I expect this situation to be temporary. IPC has hedged 50% of the USD exposure in order to mitigate the impact of a rising Canadian dollar.

Please let me know if you have any questions.

John Soutsos, CIM, EPC, B.Econ.
Investment Advisor, IPC Securities Corp.