We have taken significant time over the last several weeks to review with our partners what is happening in the world and how it impacts our clients’ portfolios. See below the culmination of our efforts. If you have any questions, please feel free to reach out. We have entitled our article: Navigating Market Challenges with Confidence (October 2023)
As always, the Lifeview team are diligently monitoring the financial markets and the potential impact on your investments. In recent weeks, we've had the privilege of spending valuable time engaging with our partners and industry experts. We're excited to share with you a summary of our insights and thoughts on the current market landscape.
In today's interconnected global economy, the challenges and uncertainties faced by the United States and Canada have implications that resonate with Canadian investors. Economic signals have been a mixed bag, leaving economists and investors pondering the potential for a recession and its magnitude. Will the economy have a "soft landing," or might we feel a deeper, longer-lasting impact? It is essential to note that this uncertainty isn't exclusive to North America; it's a global issue affecting markets worldwide.
The United States, often considered a global economic leader, has had its share of ups and downs in recent years. The onset of the COVID-19 pandemic initially caused economic turbulence, leading to a significant contraction in early 2020. However, as you're aware, extensive government stimulus packages, strategic monetary adjustments, and widespread vaccination campaigns sparked a remarkable market recovery. These policies have also given rise to concerns about inflation, potentially posing a risk to the economic outlook.
For experts, key economic indicators such as employment figures, inflation rates, and Gross Domestic Product (GDP) growth are sending mixed signals. While low unemployment rates indicate positive signs of job market recovery, they also contribute to rising wages, which in turn can lead to higher inflation. In our view, anyone claiming to have a definite forecast on interest rates and inflation is likely not providing the whole picture.
While a mild recession is expected in many developed nations, it is unlikely to be as severe as the crises experienced in 2008 or 2020. Short-term market volatility, though concerning, typically doesn't have a lasting impact on long-term market trends. To navigate this short-term uncertainty, having a well-thought-out long-term plan is essential, as markets have a track record of delivering positive results over time.
It's important to acknowledge that the unpredictability of the US economy is further complicated by global supply chain disruptions, energy challenges, and multiple geo-political tensions in 2023.
Canada, as a close neighbour and significant trading partner of the US, is typically influenced by the American economic landscape. However, Canada also faces its unique set of economic challenges. Although the country initially weathered the pandemic quite well, it must now confront unclear economic indicators. There are three differences that will probably mean the US will fare a little better than Canada over the next 12-18 months. One, the larger size and greater diversity of the US vs Canadian market will allow it to weather looming economic challenges. Two, during the pandemic Americans and Canadians both built up a pool of unspent savings. As these funds have been spent, post pandemic, they have contributed to inflation which makes the interest rate hikes less effective. The Canadian excess bubble of savings is projected to run out early in 2024 while the larger US pool should last a little longer. Three, while Canadian mortgage rates renew every 5 years meaning half of Canadians with mortgages are feeling the tightening effects of higher rates as they renew their mortgages. The US has 30-year mortgage rate locks meaning they are again less sensitive to interest rate hikes. Canada's economic well-being relies on global demand for its natural resources, including oil and minerals. Additionally, concerns are emerging about the housing market, especially in major cities like Toronto and Vancouver, where a potential bubble is being observed, prompting policymakers and economists to take a closer look. Fluctuations in global commodity prices have introduced uncertainty into the Canadian economy.
As the Bank of Canada strives to balance interest rates to control inflation and prevent overheating, concerns are growing about their potential impact on household debt and the broader economy. This has led to debates among economists about whether Canada is heading for a gentle economic landing or a more challenging one.
While it is imperative to “pay attention” to what is going on around the world, most of our partners continue to focus their time and research on the health of the individual businesses. We have spent many hours in conversation with analysts and portfolio managers. They have decades of experience and come from varying backgrounds including The Bank of Canada and various pension plans, private equity and mutual funds. We rarely heard mention of the war in Ukraine or the Israel-Hamas War unless it specifically affected a business they were researching. These “macro economic” situations, although heart wrenching often have very little impact on a specific business. While the share price may fluctuate in the short-term the underlying business are best of breed and are specifically selected to thrive over the longer term. Our partners and your portfolios are positioned conservatively to navigate the next twelve months prudently, all while remaining prepared to take advantage of the eventual market rebound once inflation comes under control and interest rates begin to fall.
In conclusion, the interconnectedness of the global economy underscores the importance of staying informed and adaptable as investors. The uncertainties surrounding economic indicators in the US, Canada, and the world necessitate vigilance and collaboration among policymakers, business leaders, and individuals to make informed decisions.
In times of uncertainty, it's crucial to keep the bigger picture in mind and ensure you have the resources necessary to reach your financial goals, much like preparing your vehicle for a long journey.
Health, Happiness & Success
Deb, Kelly & James