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Market Update. After US equity markets hit new highs in early July, volatility returns in early August

August 14, 2019

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Market Update. After US equity markets hit new highs in early July, volatility returns in early August

Market Insights

Prepare for some volatility in August as analysts watch international indicators that are hinting signs of slowing economic growth. Market dips and corrections are normal, so investors should maintain a long-term approach.

After riding a high in July, August markets opened with a temporary dip after US President Donald Trump threw a sudden curveball in the US-China trade dispute. 

On August 1st, the US announced it would implement a 10% tariff on an additional $300 billion USD of Chinese imports starting next month. Investors were temporarily deterred, but some optimism quickly shone through. 

Markets appear bullish on the fact that the US Federal Reserve has lowered interest rates for the first time since the 2008 recession, and additional rate cuts by the Fed and the European Central Bank could be forthcoming before the end of the year. Meanwhile, US S&P 500 companies overwhelmingly posted strong second quarter results. 76% of companies beat estimates and analysts expect they’ll continue to see modest growth for the second half of the year.

Here’s what else you need to know:

  • Global equity markets hit a speed bump in early August. Markets have reacted to falling treasury bond yields and weak economic growth data from China and Europe. On August 14, the Dow fell 800 points which has been the largest decline this year to date.
  • All WealthBar portfolios ended the month of July higher fuelled by strong US markets. Some portfolios had double digit year-to-date returns. 
  • The US Federal Reserve cut interest rates from 2.50% to 2.25% on July 31st as expected, citing the decision as a preemptive move given some indication of slowing growth in international economies. This was the first rate cut since December 16, 2008.
  • The Fed also left the door open to future rate cuts, saying that it would “act as appropriate to sustain the expansion.” 
  • In July, European Central Bank (ECB) President Mario Draghi indicated that the ECB could provide additional stimulus for the Euro Zone by cutting interest rates as early as September 2019.
  • The UK’s newly appointed Prime Minister Boris Johnson said his new cabinet was committed to leaving the European Union on or before October 31st, 2019 which may cause additional uncertainties in the European region with potential global impacts.    

See how these events impacted your investments below.

ETF Portfolios

ETF Safety Portfolio was up 0.42% in July and up 3.10% in the past year. The portfolio’s gains came from its allocation in US equities, Canadian Preferred Shares and Canadian Real Estate Investment Trusts. The fixed income asset class return was modest for the month.

ETF Conservative Portfolio was up 0.67% in July and up 3.45% in the past year. The portfolio’s gains came from three asset classes that included US equities, Canadian Preferred Shares and Canadian Real Estate Investment Trusts. Returns from fixed income holdings were modest.

ETF Balanced Portfolio was up 0.80% in July and up 4.14% in the past year. The portfolio benefited from a 24% allocation in US equities, while Canadian Preferred Shares and Canadian Real Estate Investment Trusts also contributed to gains.

ETF Growth Portfolio was up 0.92% in July and up 4.34% in the past year. A 30% allocation in US equities provided good gains with additional gains coming from Canadian Real Estate Investment Trusts and Canadian Preferred Shares.

ETF Aggressive Portfolio was up 1.02% in July and up 4.95% in the past year. With a 35% allocation in US stocks the Aggressive Portfolio delivered on its mandate. Canadian Real Estate Investment Trusts, also provided a good contribution weighted at 10%. 

Private Investment Portfolios 

Safety Private Portfolio was up 0.29% in July and up 4.40% in the past year. With a majority of its assets allocated to fixed income, real estate and mortgage asset classes, the portfolio’s returns were consistent with its mandate.

Balanced Private Portfolio was up 0.42% in July and up 4.58% in the past year. With about 65% exposure to bonds, mortgages, real estate, private equity and private debt, the portfolio’s returns were modestly higher than the Safety Portfolio in July.

Aggressive Private Portfolio was up 0.79% in July and up 5.03% in the past year. US income-focused equities and real estate holdings were the two main contributors to returns in July.   

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