Market Commentary – We’ve Seen This Movie Before

“The markets are the same now as they were five to ten years ago because they keep changing- just like they did then.”- Ed Seykota

Once again, investors had little to cheer about in the third quarter of 2015.

Global markets remained in turmoil as concerns regarding the global economy persisted. While much of the international focus was centred around the slowing economy in China, there were few places that investors could hide as even cash, paying little to negative interest in some parts of the world, was a relative winner in the quarter. For the quarter, emerging markets declines 19.5% as Brazil was off 34.2% and Indonesia declined 25.1%. Developed markets were off 9.1% for the quarter; 10.8% down if you excluded the US. In total, the S&P Global Broad Market Index lost $US 7.4 trillion of value in the third quarter. Through August 17, the S&P 500 in the US was in positive territory only to decline sharply in the final month and a half.

Market Commentary Federal Reserve interest rates September

Market Commentary – the Federal Reserve postponed the anticipated increase in interest rates during September

Investors were taken by surprise as the Federal Reserve postponed the anticipated increase in interest rates during September, thus causing concern as to the strength of the economy.


 Canadian Dollar               US Dollar
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Toronto Stock Exchange 2.6% -1.6% -7.9% -7.0%
S&P 500 10.1% -1.2% -0.2% 8.6% 1.0% 0.3% -6.4% -5.3%
MSCI EAFE* 13.7% -1.8% -4.8% 6.2% 4.2% -0.4% -10.7% -7.4%
91 Day T-Bill 0.3% 0.2% 0.2% 0.5%
CUBI** 4.2% -1.7% 0.2% 2.5%
CDN/US dollar -8.5% 1.6% -6.2% -12.7%

* Europe, Asia and Far East Index

** Canadian Universe Bond Index

Economic factors were not the only factors weighing on investors’ concerns in the third quarter.

The continuing upheaval in Syria dominated global headlines as countries were faced with having to deal with the mass emigration predominantly in Europe. Russia and the US have taken different positions on the Syrian situation adding to the tensions already present as a result of Russia’s deployment of troops into the Ukraine. China continues to take its place as a world power backing up its claims on much of the South China Sea through large demonstrations of its military might. In Europe, Greece voted to continue its current government almost in hope that their current difficulties would just go away.

As mentioned, investors were taken off-guard by the Federal Reserve’s decision not to raise interest rates at this juncture. The US economy continues to standout for its progress in declining unemployment and positive growth in many sectors.

Canadian investors find themselves in a tediously long election debate soon to be decided in mid-October. The uncertainties resulting from the threat of a change in government are adding to the concerns stemming from the collapse in energy commodities and the waning demand for base metals. However, more recent monthly data suggest that the economy may well be stabilizing alleviating fears of a technical recession.

Also, investors’ confidence was shaken during the quarter by several corporate developments. Perhaps the most noteworthy was the discovery of malfeasance by Volkswagen purposely deceiving customers as to the environmental integrity of their diesel engines. In addition, Glencore, one of the worlds leading mining companies, finds itself at odds with creditors in the current malaise in the base metals industry. The Glencore situation is symptomatic of many companies currently in the energy and materials sectors. Several large companies announce their intentions to layoff large parts of their workforce: Hewlett-Packard (10,000 to 20,000), Caterpillar (10,000), Johnson Controls (3,000), etc.

Market Commentary – Have we seen this movie before?

Economic cycles are part ebb and flow of commercial enterprise. As much as politicians would like to tell you that economic cycles could be controlled, there has never been a case where this has been accomplished. After seeing market increases since 2008, we are now witnessing a period of adjustment as valuation levels get reset. This is not to say that there aren’t legitimate concerns that economies are slowing down. The most recent employment data from the US appear to have given pause to the Federal Reserve’s intention to increase interest rates. Indications are that the rapid growth of the Chinese economy of the last two decades is coming to an end. This slower growth is to be expected as the economy matures. Sooner or later, China will exhibit recessions like any other developed nation. In our view, it is premature to project that a recession is imminent.

It is during these periods that staying with your investment discipline is paramount. While it is difficult to ignore the negative sentiment that comes to the fore in market corrections, it is precisely during this period that investors should be repositioning their portfolios for the next market cycle. One need not rush into buying whole positions; it is prudent to be prepared to add to positions in companies that are financially strong and well managed.

We will continue to seek such opportunities in the current market conditions.

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