September 2015 Market Update
As markets recover from August, September was still a volatile month for global equity and fixed income markets largely attributed to a slow down in global growth, lower demand for commodities, and the uncertainty surrounding the U.S. interest rate decision.
We started September with Stats Canada confirming we were in a recession by technical definition. Although we experienced two consecutive quarters of negative GDP growth, some economist feels that there are signs of a turnaround coming based on numbers in the service sector and consumer confidence. Following this confirmation, the Bank Of Canada (“BoC”) announced they would hold rates steady as they saw that “the stimulative effects of previous monetary policy actions are working their way through the Canadian economy”. More of a concern, Canadian household debt levels are increasing with consumers taking advantage of low-interest rates and increasing their debt load.
Much of September was spent mulling over whether the U.S. Federal Reserve Open Market Committee (“Fed”) would increase interest rates. Janet Yellen the, chair of the Fed, announced that rates would be held steady at the record low of 0.0% and cautioned “it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market.” This extended uncertainty around interest rates led markets into a state of volatility for the remainder of September as the decision has been postponed to a future meeting.
The continued slump in commodity prices as a result of oversupply worked its way through the economy as well. Many operations in the oil sands are announcing layoffs, including TransCanada, Cenovus Energy, and Penn West. Last week Glencore – a commodity trading company which expanded into the production of coal and copper – had its share price fall sharply to 1/5th of its 2011 IPO price.
As with other asset classes, publicly traded real estate investment trusts (REITs) were also trading down this month with BMO Equal Weight REITs Index ETF (ZRE) down 4.5%. Today Canadian REITs are exhibiting less risk than in the past since they have diversified exposure, are paying out higher yields, borrowing less, and holding more cash in reserve. With the low-interest environment, the spread between a Government of Canada 10-year bond and a REIT payout is at a 15-year high. If spreads were to narrow, the price of REITs will increase.
Due to the increased volatility and broad market declines, all our portfolios ended the month slightly down. It is important for investors to remember that periods of high volatility and significant market declines like this will occur from time to time. These are the times when it is most important to maintain a disciplined and diversified investment strategy, to hold steady throughout the market cycles, and avoid panic. In reacting to negative market events by selling out of fear and panic, emotional investors tend to participate in most of the losses while missing out on the future gains during recovery. Investing with a low-cost discretionary portfolio manager like WealthBar can help minimize the emotional aspects of investing by allowing a professional to maintain a consistent and diversified portfolio for you. Short-term market adjustments are to be expected and keeping the focus on the long-term is an important part of a good wealth management strategy.
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