What a difference a year makes!
We saw quite a turnaround story in 2019 compared with 2018. Despite escalating trade tensions between the United States and China, Brexit uncertainty, and a slowdown in the global economy, the year progressed in an unexpectedly pleasant fashion, especially in the fourth quarter. In the second half of the year, global markets soaked up additional stimulus from global central banks and a first phase deal between the United States and China to extend the longest bull market in history. By the end of the year, every major asset class was positive.
In 2020, the longest economic cycle in history will likely be supported by low interest rates. It bears repeating that a positive economic environment doesn’t necessarily translate into above-average returns. The capital markets are forward-looking and the likely theme for 2020 is show me, since most of last year’s returns were driven by the expectation of very strong company profits in 2020 and expanding P/E multiples. Company profits are unlikely to match those lofty goals so investors would be prudent not to base this year’s returns on last year’s returns.
Jerry recently attended the economic outlook breakfast meeting in Toronto (January 8 2020). The Chief Economist from all six of the big banks spoke and gave their outlook on the year ahead. Looking forward, the consensus seems to be for slow but positive global economic growth over the coming months, while interest rates are also expected to remain low by historical standards. While this type of environment tends to be generally supportive for businesses and asset markets, we are also preparing for a lower-return environment consistent with a mature business cycle, as well as periods of increased volatility. With valuations for many assets near record highs, a well-diversified, professionally managed investment portfolio can help to maximize returns and mitigate risks as they occur.
“I am an optimist, but I carry an umbrella!”
In closing, we would like to extend our sincere wishes for a Happy New Year to you and your family. We would also like to thank you for your continued trust in us and for the opportunity to assist you in working toward your financial goals. Should you have any questions about your investments or the market outlook for the coming year, please remember that all members of our team are just a phone call away.
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