August 2016 Investment Market Update
For August 2016, the markets took a vacation like everyone else. Although it was an uneventful month for the asset classes that underlie our portfolios, big stories such as the Bank of England cutting interest rates to promote growth, the outcome of U.S. Federal Reserves annual meeting and news of Canada’s economy shrinking will impact the market in the months to come.
Stats Canada revealed the economy shrank by 1.6% in the second quarter this year. This was the worst showing in seven years, hurt by a drop in exports and a disruption to oil production caused by wildfires in northern Alberta.
We saw crude oil continue to rebound since its February low, although it closed the month down amid fears of low levels of demand and oversupply.
The Canadian REIT index saw a decline of 5% this month. The pull back can be linked to concerns of over valuation and potential interest rate increase in the U.S.. Despite its decline in August the index is up 17.6% for the year and could have further head wind when the S&P and MSCI shake up their indices and add REITs as an independent asset class.
At the annual Federal Reserves meeting in Jackson Hole, Federal Chair Janet Yellen said she was seeing the U.S. economy showing signs of improvement, supporting a strengthening case for an interest rate increase. This increased speculation of another rate increase before the end of the year.
In response to Brexit the BoE announced measures to prevent a recession. These include the first rate cut in seven years to 0.25%, an additional £60bn for quantitative easing– when banks encourage economic growth through buying government bonds– and another £10bn to buy corporate bonds from firms “making a material contribution to the UK economy”.
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Neville Joanes is the Portfolio Manager & CCO at WealthBar. Neville oversees portfolio management and investment operations, ensuring that clients’ portfolios meet their objectives. He is dedicated to his goal of always delivering the best investment management to our clients. Neville is also a CFA® charter holder.