September 2016 Investment Market Update
After a quiet summer, September saw a spike in market volatility. Oil producers agreed to limit production, market indices reclassified to include REITs, the Federal Reserve held rates steady, and Deutsche Bank was fined $14 billion for its role in the mortgage crisis.
Equity and fixed income markets around the world saw a fairly calm summer after Brexit. However, following the summer break, equity markets fell as central bankers questioned the benefits of further monetary easing, speculating a potential US Federal Reserve rate hike increase, and worldwide oil supply started to outstrip demand.
The record level oversupply of crude oil combined with slower than expected growth in developing countries lead to a deal between major oil producers to cut production. When the deal was announced last Wednesday the Canadian dollar strengthened and oil prices soared. However, there are reservations that the deal will succeed to jump-start Canada’s oil and gas sector which has suffered from low oil prices.
The anticipation of a US Federal Reserve rate hike factored into the market volatility we saw earlier this month. However, the Fed announced rates would remain unchanged and hinted that a rate increase is likely before the end of the year.
This month the REIT sector received its own unique classification among major stock indices. This important change to indices puts REITs in the spotlight and have produced great returns this year. With the Federal Reserve holding rates steady REITs continue to provide positive returns in a low-interest rate environment.
Finally cause for concern came from U.S Department of Justice imposing a $14 billion fine on Deutsche Bank for its involvement in the mortgage crisis. Deutsche has recently been classified as one of the riskier banks in the world and its potential collapse could have broader implications on the financial sector and Europe. Analysts say that due to Deusche’s low capital ratio (assets/debt) it would require funds to pay a settlement with the DoJ. Failure to raise those funds could lead to its demise. Since the bank is linked with other publicly traded banks and insurance companies, it has the potential to be the source of another worldwide financial downturn should it collapse. One of the lessons learned from the Great Financial Crisis was how to prevent financial institutions from failing, which gives Deutsche further options..
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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.