Is it just me?
Is it just me, or is it starting to feel a bit weird out there?
How is the market performing?
As summer draws to its inevitable conclusion, I found myself glancing at financial information and random news clippings I had set aside. The recent announcement of Bank earnings that had me wondering how the markets are doing overall (notwithstanding the financials are a significant component of the various indices). A charting of the performance of the Dow Jones Composite and the TSX, since July, resembles that of a squirrel that didn’t make it across the road. In a word, flat.
Similarly, and perhaps even more startlingly boring, are the yields on Government of Canada bonds this summer. Take a look at the 5 and 10 yr. GOC’s over the past 30 days here. Many much more clever pundits will undoubtedly have very viable explanations for all of this. But I can’t help but think something is about to happen. Is the market overvalued? Is this the proverbial calm before the storm? It appears not.
Calm before the Storm?
At the beginning of the summer there was pessimism on many fronts, with uncertainty south of the border, Brexit sending many into a state of disbelief, and continued calls for the likelihood of rate increases here in North America. Now by many accounts the US economy is performing well, and job growth is positive south of the border. The Brexit vote seems not to have caused too many investors to jump off high buildings. Signals from the U.S. Fed appear to be mixed. While a rate increase is expected, there is no certainty as to when. So what’s the problem?
Global Outlook positive
A recent Global Economic Outlook report by General Electric makes for excellent reading. There appears to be a very real possibility of a mild recession in Britain next year, and while US growth appears to be slowing, forecasts are for stable growth going forward, in the range of 2% annually for the next several years.
A negative bias appears to be unwarranted. While advanced economies have slowed, emerging markets have not, and overall global GDP growth, while averaging 3.8% in the first half of the decade, is forecast to decline only to 3.4% for the balance of the decade.
In Canada, the honeymoon period for our new government may be waning. But on the economic front, a glimmer of hope as oil prices are firming. While Alberta has taken a serious hit, economic activity elsewhere, while not spectacular, is nevertheless positive. Ontario and Quebec certainly benefited from lower oil prices, both at the consumer and manufacturer level. Growth in Ontario is forecast to grow at roughly 2% annually.
So I have decided to put those newspaper clippings in the recycle box, while I reflect on the famous quote of Edgar Fiedler, “If you have to forecast, forecast often”.
Enjoy the last long weekend of the summer!