Caerus Wealth January Commentary
The new decade began with a bang and it continues to rattle some nerves. The killing of the Iranian General was an unnerving event that increased the likelihood of a devastating war, but now the world is holding its breath to see if global authorities can control the corona-virus epidemic. Last Friday, fears increased around the economic impact of the outbreak, which last week was declared as a global emergency, that has pushed down S&P into red territory for the year.
Overshadowed by the outbreak, so far, we’ve seen a healthy earnings season that has companies like Amazon, Apple, Alphabet and Microsoft reporting strong numbers for the fourth quarter. Depending on the spread and velocity of the corona-virus, we could feel the negative impact caused by the disruption in business and services across the globe but it’s still too early to tell.
So far, the Hang Seng and Shanghai indices are down approx. 10% and 12% respectively since the beginning of the year and will most likely continue to slide if the virus isn’t contained. China is to inject some much-needed liquidity in the market, but the Asian markets are still quite rattled and continue to remain timid.
Over the weekend, ISM data pointed to stronger than expected US manufacturing data which will be the first expansion after five straight months of contraction. This is very positive news as it offers hope that a prolonged slump in business investment has probably turned around. This is important in keeping the longest US expansion in history, which is now in its 11th year, on track for possibly another year of expansion or more.
Last week, Mr. Powell said that the Fed’s position currently is to hold rates the same and possibly continue this policy throughout the year. It’s clear that the Fed wants to make sure that they are not going through a deflationary period and is ready to interfere at any moment to help using monetary policy. Currently, the inflation target rate is below the desired 2% and their goal in 2020 is to see that number rise. The continued low rate environment remains to be attractive for business and we’ll see if it helps drive earnings and boost equity markets further.
In other news, after a long hard battle and 3-1/2 years after the referendum, the UK has left the EU. While some celebrate, there are those that take the news as a sad turning point for Europe. Now
that it’s finally over, the UK and EU are laying out the foundation for their negotiations as Johnson has promised to strike a broad free trade agreement with the world’s biggest trading bloc, EU, although Germany and France have warned that this could be lengthy and difficult negotiations. So far, we’ve seen a little financial impact from this divorce, and we will continue to monitor the spread and outbreak of the corona-virus in the region.
Finally, last Weds President Trump signed a new North American trade agreement, the US-Mexico-Canada Agreement (USMCA) that will replace the 26-year-old North American Free Trade Agreement which includes stricter rules on labour and automotive content but leaving approx. $1.2 trillion in annual trade flow is unchanged. Mexico has already approved the deal, but it must still be ratified by Canada’s parliament before it can take effect.
To summarize, we have not had to make any changes to the portfolio. We will continue to monitor the corona-virus closely and will make changes necessary to protect portfolio values against worsening developments. We are hopeful that the virus will be under control over the upcoming weeks and we can focus our attention back to market drivers and the 11th year of US economic expansion.
As your trusted Portfolio Managers, Caerus Private Wealth and its team are available to address any questions you may have.
Terry Fay, Director, Private Client Group, Portfolio Manager
Kian Ghanei, Director, Private Client Group, Portfolio Manager
Caerus Private Wealth – HollisWealth, a division of Industrial Alliance Securities Inc.
700 – 609 Granville Street, Vancouver BC V7Y 1G5
T: 604.895.3316 | TF: 1800.665.2030 | F: 604.682.0529
terry@caeruswealth.ca | kian@caeruswealth.ca
holliswealth.com | caeruswealth.ca
This information has been prepared by Terry Fay and Kian Ghanei who are Portfolio Managers for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Terry Fay and Kian Ghanei can open accounts only in provinces in which they are registered. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.