September 2016 Review & Market Outlook
October 4, 2016
Kim Mailey, CFP
Senior Wealth Advisor
Director, Wealth Management
And Now for the Fourth Quarter………
With the end of the summer, a seasonal volatility pickup in September arrived as was expected.
Central banks remain the center of market trends with an accommodative policy. The new 52
week high for the S&P 500 in mid-July was confirmation for Scotia Wealth Management’s
Portfolio Advisory Group that the ‘09 bull market was still alive. You may be interested to know
that historical studies have shown that the “first 52 week high in 12 months” has a near perfect
track record for delivering positive twelve month performance after this event has occurred.
September ‘16
Y-T-D
1 Year
3 Year
5 Year
10 Year
S&P/TSX Composite
+ 0.88%
+ 13.19% +10.66% + 4.82%/yr. + 4.84%/yr. + 2.27%/yr.
S&P 500 (C$)
- 0.19%
+ 0.63%
+10.56% +19.99%/yr. +19.31%/yr. + 6.67%/yr.
MSCI EAFE (C$)
+ 0.89%
- 5.95%
+ 1.31% + 6.04%/yr. + 9.34%/yr. + 0.59%/yr.
* Source: Equity Index and Currency Data:
Bloomberg. Data as of September 30, 2016
Continued patience from the Fed and clear signaling that the interest rate hiking cycle will be very
shallow should keep the U.S. Dollar range-bound and maintain global market tailwinds. Investors now
see a 61% chance of the Fed raising U.S. interest rates in December, up 10 percentage points from a
week earlier, following comments from Fed Bank of Cleveland President Loretta Mester. One of three
policy makers to dissent in favor of an increase at the September meeting, she said yesterday that she
expects the case for a rate hike to remain “compelling” at the central bank’s November review.
Other major central banks are also likely to continue with ultra-loose monetary policy. Signs of firming
Chinese economic activity are also supporting the case for global economic recovery. Remaining
economic slack and very low interest rates suggest economic cycle risks remain modest over the coming
year. However, geopolitical risks (driving near-term market volatility) look to remain elevated into yearend as U.S. November elections take centre stage with two more presidential candidate debates set for
Sunday October 9th and Wednesday October 19th. There may be opportunities in the coming weeks to
use a “buy-on-dips” approach as the most recent pullback, in fact, offered attractive opportunities to put
cash to work.
I continue to advocate a cautious but optimistic overweight to equities. I expect returns to be subdued
but positive with the occasional interruption from mid-single digit pull-backs. These pull-backs will give
investors the opportunity to invest any excess cash. As for this bullish bias, I believe the old adage “bull
markets climb a wall of worry” represents today’s environment as there is no shortage of concerning
issues – too many to list here!
With the recent OPEC agreement to cut oil production, some stability has emerged in oil prices.
Scotiabank’s forecast is for oil to remain around the current $50 per barrel price and trend towards $60
per barrel in 12 – 18 months’ time.
This morning I attended a presentation by Scotiabank’s Chief Economist, Jean-François Perrault. It is his
belief that the economy in the U.S. is relatively “good shape” and the economies in Canada and Europe
are strengthening. He expects interest rates in the U.S. to be about 1% higher by the end of 2017, but
Canada’s rates are likely to be up by no more than half a percent in this same time period. He forecasts
the Canadian Dollar to be about $0.80 versus the U.S. Dollar at the end of 2017. Canadian debt to
disposable income ratio is much talked about. However Jean- François Perrault goes on to say that the
Canadian consumer has acted rationally in this environment by investing in equity and real estate assets
which have increased dramatically in value. He contends that Canadian debt to household net worth
ratio has actually declined.
I continue to believe that conservative investors seeking a reasonable return with a focus on risk
management for their savings are best served by having the core of their savings in a pension portfolio
similar to our Federal Canada Pension Plan. Summit, Pinnacle and Russell all follow this institutional
pension process with a high level of due diligence and disciplined rebalancing.
Finally, the RRSP is fast approaching its 60th birthday! The RRSP was created in 1957 and contribution
limits were 10% of the previous year’s income up to a $2,500 maximum. Now contribution limits are 18%
of the previous year’s income up to a maximum of $25,370 for 2016. RRSPs are now competing with
TFSAs and business owners finding more tax efficient ways to save. This may explain why only 23% of
Canadian tax filers use RRSPs
The Mailey Rogers Group welcomes comments and questions about the information provided above.
Mailey Rogers Group is hosting three learning opportunities in the coming two months. Please
visit the “Join Us!” tab on our website for more details and to reserve your seat.
Quote of the week: Why doesn’t Janet Yellen like football? ‘Cause the quarterback keeps yelling “HIKE”!
Sincerely,
1555 Marine Drive, West Vancouver
Tel: 604-913-7013
WWW.MAILEYROGERS.COM
Mr. Kim Mailey, CFP
Senior Wealth Advisor
Director, Wealth Management
MAILEY ROGERS GROUP
Follow us: linkedin:maileyrogersgroup
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