The second quarter of 2017 has come and gone, and the markets were dictated by one overlying theme: growth amidst uncertainty. Although the uncertainty that the markets endured this quarter did little to prevent the markets’ advancements, investors were left waiting to see where the dust settled on a couple issues.
Firstly, there was great uncertainty when it came to the political landscapes of several countries.
In the US, President Trump made headlines again, this time for dismissing FBI Director James Coney leaving investors again waiting to see where the chips fell. Due to this, doubts grew over the ability for President Trump to make good on his promise to remove the barriers that held up the fiscal restraint in the United States. However, when all was said and done, there wasn’t any noticeable additional volatility in the financial markets over Quarter 2, and the S&P 500 recorded a total return of 3.1% during the time period. President Trump is also attempting to lead a healthcare reform, the Better Care Reconciliation Act, which has seen the healthcare sector of the market end the quarter as real winners.
Over in the Eurozone, equities made gains among reduced political risk in Quarter 2. At the beginning of the quarter there was a lot of uncertainty as to the results of the French election. Many were concerned with the prospect of a victory by Marine Le Pen, and her anti-Euro campaign. Winning the election was Emmanuel Macron, a man whose support of a strong EU gave investors peace of mind, and the markets responded positively.
There was still residue of the volatility felt during the Brexit vote during the second quarter of 2017. Prime Minister Theresa May surprisingly called for a General Election, held on June 8th, as a way to ensure her Conservatives had the necessary seats ahead of what will be significant negotiations with the European Union. These negotiations are a sensitive issue, and will encompass the trade ability for the UK for years to come, leading to more uncertainty about the future of the United Kingdom’s economy.
The second cause for concern was regarding the uncertainty felt with the potential increase of the interest rate in both the United States and Canada. Now that the quarter has concluded, we can look back with the knowledge that the uncertainty experienced was justified as both countries’ central banks did go ahead with these increases.
The US Fed increased their key interest rate for two consecutive quarters, as an increase in March was followed up by another in June. Following the end of Quarter 2, the Bank of Canada followed suit and increased their interest rate for the first time in seven years, though by only 0.25%, which was as many expected. While headlines continue to warn us about increasing Canadian consumer debt, the big question on everyone’s mind is: “What does this mean for me, and how much worse will it get?”
It is important to focus on a few things heading in to the second half of the year, but most significantly, and simply put, it will cost more to borrow. This, for the most part, will result in more money needed to supplement Canadians’ debt instruments such as Lines of Credit, Home Equity Lines of Credit, variable mortgages, variable car loans, etc., with less money left over to provide for lifestyle spending.
Our tip for the quarter: If you are worried that your debt will become more expensive to hold due to the rising interest rates, then reducing monthly lifestyle expenditures now is key in order to avoid either increasing your debt or reducing your contributions to your savings plan. If you need help restructuring your budget or savings plan, we’re happy to help.
All the best,
P.S. Due to the varying market volatility in different parts of the world, it is important to put focus on diversifying your portfolio globally. If you would like more information on this, please take a look at an article that we find encompasses this strategy very well on page 18 of the Solutions magazine titled “Benefits to an international investment passport”.