Fourth Quarter 2019

With the decade ending on December 31, 2019, we look back over the past ten years to see how the various financial markets performed. The U.S. equity market handily outperformed the rest of the world, generating a compound annual rate of return of 16.0% (in Canadian dollar terms). The Canadian market lagged significantly behind, generating a comparative return of 6.9%. Canada was held back by the absence of any performance in its energy and materials (mining and forestry) sectors. While Canada lagged its southern neighbour, its performance was more or less in line with most major indices in Europe and Asia. The best performing major market outside of the United States was Japan, where the major index delivered a total return of 9.0% (again, in Canadian dollar terms). In the developing world, equity markets for the most part performed relatively poorly over this period.

The year 2020 will be most interesting on the political front. The United States will be in a critical election year, which will serve to further elevate that country’s level of political turmoil. The British government is now fully mandated to pursue Brexit, which it will with aggression. As a result, the rest of Europe is in the midst of re-defining itself. Trade agreements are being re-negotiated all over the world, but most importantly those involving China. Tensions are flaring up again in the Middle East, a region that seems doomed to ever find a lasting peace. All of this creates uncertainty which tends to lead to turbulence in financial markets.

The ultimate driver of positive market performance is an expanding economy. It is difficult for most public companies to grow in a contracting environment, or to create new jobs and to invest in a manner that promotes efficiency and productivity. The most important element to our outlook is forecasting economic growth.

In North America, both countries continue to enjoy an expanding GDP. In fact, Canada is doing surprisingly well, in spite of the heavier tax burden that it carries compared to the U.S. The Canadian energy industry, which has been moribund for years, is showing some modest signs of recovery. In the U.S., a successful (multi-phased?) negotiation with China over trade will be positive for both countries.

Despite the slowing in global economic growth in the second half of 2019, there is no evidence that a recessionary scenario is imminent. We believe that both global and North American economies will continue to grow in 2020. While it will be a most interesting and uncertain year politically, there is no reason to believe that the current global expansion is immediately threatened. We remain confident in our longstanding strategy of providing exposure to the global economy primarily through U.S.-based multinational companies.

With this economic forecast in hand, we do expect continued positive performance in the North American equity markets. Our strategy is to stay the course, but keep a sharp eye out for any shoals ahead.


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