November 2016 Investment Market Update
We kicked off the month with a lot of market uncertainty. This was quickly turned around as Donald Trump won the US election and OPEC agreed to cut oil production. Equity markets rose (S&P500 +3.7%, S&P/TSX Composite 2.2% & Nikkei +5.1%) and volatility subsided (VIX -21.8%). A stronger US economy and expected inflation caused bond prices to decline with the yield on the 10Y treasury increasing to 2.39%.
The run up to the U.S. presidential elections caused a lot of market uncertainty with the VIX (volatility index) crossing 22 before election day. On election day when incoming results started to favour Donald Trump, markets around the world experienced jitters. The market rationalized after Trump claimed victory and through the remainder of the month we experienced the Trump rally with equity markets hitting highs. The majority of president elect policies–which suggest possible tax cuts, higher spending on infrastructure and simpler regulations–are market friendly and have driven this rally.
Although the Trump policies were positive for equity markets they present increasing inflationary pressures which were exacerbated when coupled with rising oil prices. With the US economy continuing to show improving results consensus among analysts suggest the Fed increase interest rates in December. Expected inflation and interest rate hikes have caused the US 10 Year bond yield to soar and treasuries to have their worst performance since December 2009.
Our portfolios are positioned to gain from the increase in global equities. Although interest rates are expected to increase our bond exposure is less sensitive (short duration) to such changes. We also have allocations to high yield bonds which often thrive when rates rise and preferred shares that could benefit from tighter credit spreads and higher interest rates.
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.