Canadian stocks are off to a strong start to begin 2019. Not only has the S&P/TSX Composite Index risen roughly 9% – erasing two thirds of last year’s decline – but it is also one of the world’s leading equity markets so far this year (see the chart below). Given the Canadian equity market’s procyclical behavior, it’s not surprising to see it rally stronger than other global bourses in a risk-on period like the one we’re in now. It’s also quite possible that Canadian stocks were sufficiently on sale to warrant a bounce off levels that were consistent with deeply pessimistic sentiment: Canadian stocks were, and still are, trading at one of the cheapest levels to developed market equities in the past three decades. So … [Read More...]

It could be more of the same. Our base case is a continuing state of “uneasy equilibrium,” where positive fundamentals, in the form of solid economic and corporate earnings growth, square off against rising macroeconomic uncertainty. Overall, our expectation is still that the environment for risk assets will be positive, but only mildly so: the economic cycle is getting long in the tooth and financial vulnerabilities are growing. Key to those vulnerabilities are rising economic uncertainty, driven largely by trade disputes, and tightening financial conditions, driven by monetary policy that’s slouching towards neutral. For 2019, we believe global growth looks poised to slow along with corporate earnings growth, as the U.S. economy hits late-cycle. There doesn’t seem much chance of a recession in 2019, yet fear … [Read More...]