Despite bitter feuding in Washington and the possibility of a wider scale war in Syria, world markets continued to rally this quarter. The US-based S&P 500 is near record highs and was up more than 5% for the quarter. The TSX is now at its highest level since July 2011, and was up more than 6% for the quarter.
The global economy continues to improve. Markets have overcome nervousness about issues such as the Federal Reserve's next moves, the US government shutdown and debt ceiling debacle, or the possibility of military intervention in Syria. Positive developments were most notable in the U.S. and Japan, but Europe and the UK also witnessed stabilization and growth. In other positive news, after years of impressive growth China appears poised for a soft rather than a hard landing.
As the quarter drew to a close, the focus was firmly on the US and another round of debt ceiling debate. Thankfully, after a brief government shutdown the debt ceiling was raised, averting what could have been economic catastrophe. As with the two shutdowns during the Clinton administration, it caused relatively minor economic problems and it was short-lived. That being said, 700,000 federal employees were without a pay cheque and Americans are very angry about it. Although there was some volatility, for the most part, investors kept their cool throughout the crisis and the markets reflected this.
Japan's stock market is doing exceptionally well and is up 65% year over year. This is cause for celebration in Japan following the period from 1991-2010 which the Japanese refer to as the 'lost decade.' After years of brutal recession in Japan- which is still the world's third largest economy after the US and China- Japan's economy finally appears to have turned a corner. The economic policies of Shinzo Abe (dubbed 'Abenomics') appear to be working. As long as demand from other parts of Asia does not diminish, Japan's recovery should remain intact.
Canada is well-positioned to participate in the global recovery in the mid to long term. While the US markets are at or near record highs, Canada is not even close. The TSX is at around the 2007 level, or about 15% off the all-time highs of 2008. Commodity and resource prices will eventually rebound, and when they do, our market will rally in tandem. The question is not if this will occur, but rather when.
The new reality is 'volatility' and investors seem to have accepted this. Headlines do not have anywhere near the negative effect that they had in the past. The crises in Europe and multiple debt ceiling scares in the US have taught us that despite a few bumps in the road, in the long run the markets only continue to go up. As always, please feel free to contact us at 604-688-5262 for a review of your portfolio.
All the best,
Anthony Ciccone, B.Comm., CHFC
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