Market Insights

Market Update. Investor confidence stoked by US tax reform

December 14, 2017


Market Update. Investor confidence stoked by US tax reform

Market Insights

See more about how our portfolios performed.

Markets head upward as investors bank on tax cuts

Our portfolios enjoyed another month of solid performance in November, partly due to general market confidence across global economies.

The Dow also soared past 24,000, showing investors have faith that US Republicans’ tax code reform effort will bode well for the country. The Nasdaq was likewise up 30 percent since the Trump administration was elected. If implemented, the new tax reform legislation could cut the corporate tax rate to 20% from 35%, which would be a huge boost for large corporations.

Much of the confidence around tax breaks has already been “baked into the cake” of the economy over the last few months. We’re likely to see less volatility in the markets as investors cease worrying about the reforms not going through.

Hot tech stocks take a breather, while the rest of the corporate world tries to catch up

While US markets tended to move upward in November, one outlier towards the end of the month was tech stocks. High-performing Silicon Valley tech titans like Alphabet (which owns Google), Facebook and Amazon that have enjoyed a long upward surge finally took a bit of a dip. Meanwhile, more traditional industries like retailers, banks and airlines, many of which have invested in new technology to drive efficiency, did see an impressive rise. (As the CNN analyst noted: “Up is down. Black is white.”)

Canadian confidence still heading north

Meanwhile, in Canada the benchmark stock index, the S&P/TSX Composite reached an impressive high above 16,000. Job growth and consumer confidence are high, with the economy on track to lead the G-7 in terms of performance. One key indicator of strength: Canada added 35,000 jobs in October,  continuing a long-term trend of positive job growth.

We are still expecting interest rates to rise long-term, but are keeping that risk in mind as we continue to trade Canadian assets and are taking measures to mitigate volatility. For instance, we have enjoyed excellent returns from investments in Real Estate Income Trusts and see continued earning potential in this area.

In related Canadian market news, the price of oil hit above $58 in November, partly due to the Keystone pipeline shutdown. An accident cut supply to the USA by 590,000 bpd, a disruption that would take weeks to fix. Nonetheless, the higher price of oil that has continued into December was no doubt welcomed by the oil and gas sector. Traditionally, that has been the engine of Canada’s diversified economy.

Positive equity opportunities across the globe

The improved Canadian dollar is also helping us to earn positive equity returns across the globe and this trend may continue. For instance, Japan’s Nikkei is up 3% over the month, with a 26% return for the YTD. Our international exposure has given us an excellent return through the XEF (23%), more than doubling the performance of the Canadian market (which still did quite well).

We see emerging potential in emerging markets. They are well-placed for growth in 2018. Developing countries haven’t fully recovered from the crisis of 2008. As a result, many market watchers still see room for upside on profits and better valuations.

And as we noted above, the US is still an economic powerhouse. This indicates we should continue our strategy of international diversification to take advantage of a world of opportunity.

What does all this mean for your investments?

November was a banner month for WealthBar’s investors on multiple fronts, thanks to rising confidence here and abroad. WealthBar’s portfolios are well-positioned to take advantage of growth trends, while mitigating volatility.

Do you have questions about your investments at WealthBar? Set up a call to talk to your financial advisor, who can help you get the answers you need.

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