A Little Market Perspective

Over the last 30 days we have experienced heightened volatility on the TSX and globally.  I wanted to share some recent insights with you and our current outlook.

What’s Happening?

We have seen greater volatility in the last couple of weeks than we have grown accustomed to in the past couple of years.  Having said that, corrections are normal and the short term movements we are seeing may just be the market shaking out some of the froth, allowing investors to refocus on fundamentals and consolidating before the next move.

Historically, this part of the year tends to be choppy and 2014 is no different.  We are seeing continued conflict in the Ukraine and the Middle East, Ebola, Protests in Hong Kong and now the upcoming mid-term election as well as the end of Quantitative Easing.

The Story Hasn’t Changed!

-The U.S. is doing better than investors may feel (despite the amount of headline noise) and we believe the economic recovery remains firmly intact.  The economy is not growing at a rapid rate, but growth is still consistent and positive.

-The rest of the world (particularly Europe, Japan and China) are struggling to grow and are facing headwinds, as a result it is possible Europe may go into recession.

-Commodity prices remain low which has kept the Fed on the sideline.  The strong U.S. dollar also helps to keep inflation in check and the U.S. import prices in check.  Low inflation is another factor keeping the Fed on the sideline.  Low oil prices are also great for the consumer which could be excellent timing given that we are headed into the ‘consumer’ season.

What is the Outlook for Q4?

Historically the third quarter (July-Aug-Sept) has been the weakest performing period of the year.  However, in the fourth quarter (Oct-Nov-Dec), markets tend to rebound for a strong close to the year.  Mid-term elections have historically been good for the equity markets (regardless of the winner!).   Many of Fidelity’s Portfolio Managers and Economists have commented that the recent market noise has been short-term and not systemic.  The recent drop in oil prices could be hugely beneficial for consumers and companies alike as we head into the final months of the year.

In times like these the portfolio managers we hire really earn their pay, for months many have been hording cash in their portfolios to take advantage of dips in the market.  I always say two steps forward, one step back, no one likes the step back, but it is normal and healthy within the market cycle.

As always, if you have any concerns or would like to discuss how your portfolio is holding up, don’t hesitate to give me a call.

Have a great weekend,

Tracey

Source:  Fidelity Investments