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Q4 2019 - Investment Update

Looking back at 2019

Looking back at 2019 Most global markets got off to a roaring start as they recovered from the sharp selling behavior seen in Q4 2018. For the following 6 months, markets struggled to gain traction as investors digested an overwhelming amount of geo-political news. A US China trade war, a tightly contested Canadian Election, and the Impeachment of US President Donald Trump were among the headlines dominating the investment news cycle in 2019.

Meanwhile, on the other pages of 2019 newspapers were uplifting stories about how the United States passed a
new law outlawing animal cruelty, how Ethiopia smashed the world record for tree planting by planting 353 million trees in 12 hours, and Save the Children’s report that in the last 20 years children’s lives have improved in 173 out of 176 countries.

GDP figures in most cases were positive, and the consumer driven US Economy showed few signs of slowing down.

Markets climbed higher in Q4, with the Canadian TSX Composite increasing 3.2% on a total return basis, and the US S&P 500 (CAD) gaining 7.0%, led once again by strong gains in the technology sector.

Key macro events that contributed to the climb were: The first sign of substantial progress in the US China Trade War with the announcement of a formal Phase 1 deal; UK Brexit clarity that was drawn out of Boris Johnsons’ resounding election win granting him the authority to “get Brexit done”; An accommodative shift by the US Federal Reserve to further cut interest rates by ¼% and boost investor confidence.

When the dust settled in 2019 the MSCI World Index had grown by 25%, led by the United States at 24% (CAD) and trailed by Canada and the MSCI Europe (CAD) at 19% and 13.5% respectively.

US stock returns were somewhat muted for Canadian investors, as the Loonie dollar gained 5.26% against the US Dollar.

What to Expect in 2020

Equity markets have become more expensive throughout 2019 as the average price investors pay for a company’s earnings in the US (Price-to-Earnings Ratio) has increased throughout the year, climbing from 16 times earnings to 19. It is worth noting that historical averages of approximately 15x suggest that a pull-back in stock markets may yet lie ahead.

The key manufacturing measure in the US dipped further into contraction territory in December for the fifth
consecutive month. On the contrary, the services sector continued to compensate for weak manufacturing
suggesting that while Americans may be purchasing fewer physical goods, they continue to increase how much
money they spend on services. The trend is similar in Canada.

This is also an election year for our neighbours to the south. While this election looms large for some, markets
have historically been positive in election years. In the 23 US elections since 1928, only 4 times has the US stock market been negative.

We anticipate muted, yet positive equity returns in 2020. Government bond yields remain under 2% meaning they serve only as inflation protection and deliver no net benefit to an investor’s bottom line.

To maintain a balanced risk objective in our portfolios, we continue to allocate towards income producing
Alternative assets that provide consistent risk-adjusted returns while maintaining our overweight position to US equities.

Thank you for your continued support.
-The Gilman Deters Private Wealth team

I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by HarbourfrontWealth Management Inc.”

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Q4 2019 - Investment Update