Market Commentary

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Q3 Review - Market Commentary 2015

You’ve likely heard of the “adjustment” in the Canadian stock market over the past few months, and if your investment portfolios hold any Canadian equity, you’ve potentially seen some negative effects. With the election finally over, we wanted to take the opportunity to review some of our economy’s key issues and whether or not we expect to see any changes as a result of our new government.

The Economy
As mentioned, the greatest challenge in our portfolios has been with the Canadian holdings, simply due to the impact of falling oil prices. The S&P/TSX Composite fell nearly 8% in Q3, dragging the overall year-to-date return to -7%. This is not necessarily representative of your personal investments, but rather how the market has performed overall.

Given that many of Canada’s blue chip dividend-paying companies have exposure to the energy sector in one way or another, their share prices have been greatly impacted by oil prices. The good news is that while we have seen share prices fall, these are still very good companies with solid fundamentals and strong management teams. This in turn affords the portfolio managers an excellent opportunity to increase their holdings in the companies they already own, and add others at extremely cheap prices, recognizing that the price of oil will not remain low forever. This positions our portfolios to do very well once the issues described above begin to stabilize.

Renewable Energy
The Liberal government has an ambitious plan for renewable energy projects, with a promise to commit nearly $6 billion in ‘green’ spending over the next term, increasing that up to nearly $20 billion over 10 years. They will also incorporate climate impact analysis into federal contracting, with could get additional money flowing into that sector. All of this is welcome news for Canada’s renewable energy companies, especially as we are still feeling the downfall of the Conservative government’s focused investment on the oil and gas sector.

Government Bonds
The spread between Canada and US 10-year bonds widened after the election, and economists say the difference could continue to widen, as Trudeau will run an annual budget deficit over the next few years. Having said that, they do not expect any sizeable moves over the long term, given that the proposed debt will not be enough to crowd out other borrowers from the market.


While credit-rating agencies certainly take note of growing government debt loads, economists say that nothing remotely suggests that Canada’s AAA credit rating will be at risk. The credit rating depends on a number of factors, including economic activity, commodity prices, and fiscal discipline. We see virtually no risk of notable deterioration in fiscal health as a result of the recent election.  

Interest Rates
The Bank of Canada has been doing a lot of work to stimulate the Canadian economy, and the Liberal promise to boost government spending may reduce some of the pressure to lower interest rates, which are already extremely low. In fact, as commodity prices begin to stabilize and inflation gradually begins to rise, we may even see the US Federal Reserve raise interest rates before the end of the year. An increase in US rates would no doubt cause the Bank of Canada to follow suit, as to do otherwise could place further downward pressure on the Canadian Dollar, which ended the last quarter at just around US $0.75. 

As we have always said, it is important to not lose sight of our original investment objectives during these times. We expect less volatility in the coming months, so keep focused and take advantage of the opportunity to purchase great businesses at a discount.

All the best,

Anthony Ciccone, B.Comm, CHFC             Sabrina Beaudoin, B.Sc, CFP

P.S. The Liberal platform also includes their plan to revert the Tax Free Savings Account annual limit back to $5,500 from $10,000, which was increased earlier this year.




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Ciccone/McKay Financial Group is an independent financial services firm with over 75 years of combined experience in the areas of risk management, wealth management and employee benefits.


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