2019 August Commentary Danny Popescu 09/06/2019 575 Closed Good day, Most of the market’s action during August was a result of the ongoing U.S.- China trade war along with reaction to President Trump’s angry tweets. The tweets ordered all U.S. companies to move out of China, while another scolded Fed chair Jerome Powell for not giving clearer guidance on the pace of interest rate cuts. For the month, the TSX gained 0.22% while the S&P 500 (CAD) fell 0.92%. Bonds rallied hard on news relating to the dispute too, with the Canadian Universe Bond Index gaining 2.05% in August; the Government of Canada 10-Year bond now pays a measly 1.16%. Equities Frictions between the world’s top two economies intensified on August 1st when Trump announced he was putting a 10% tariff on the remaining $300 billion of Chinese products coming into the U.S. This caused the S&P 500 to drop roughly 6% over 3 sessions after the announcement. (Canada’s main stock index fell too but much less than its U.S. counterpart, dropping only around 3%.) Not to be outdone, on August 23rd, China announced retaliatory tariffs of 5% – 10% on $75 billion American exports which caused the S&P 500 Index to fall 2% within a few hours. However, the following week both parties put out conciliatory messages, with China stressing for a calm attitude towards the dispute, which drove stock markets higher globally. Adding to this was the decline in the 30-year U.S. Treasury yield to below that of the S&P 500 dividend yield, making equities relatively more attractive from an income perspective. The end result was a choppy month with big moves both up and down (with quite a few days closing above or below 1% as indicated below). Until the dispute ultimately gets resolved, we should expect the markets to grind higher when there is no news and see bigger drops on bad news. Fixed Income The bond market continues to rally with longer-term interest rates moving lower as investors flocked to safer assets partially due to fears of a global economic slowdown. In the U.S., this caused the most closely followed part of the bond market to invert (meaning the rate on 2-year bonds is now higher than that of 10-year bonds). Looking Ahead While the bond market has done very well year-to-date (imagine you own a GIC at 2% and rates drop down to 1%, that 2% GIC now pays twice the interest of the 1% GIC, so it becomes more valuable), continuing to bet rates will go lower is not a great risk / reward play. As such, over the upcoming months, we plan on increasing our allocation to alternative asset classes including adding a real estate pool employing the “value add” approach I wrote about in previous commentaries. This strategy increases property market value, but the real estate sector should also benefit from lower interest rates. Focusing on private real estate rather than publicly traded real estate investment trusts further reduces portfolio volatility which we believe is paramount given that equity markets seem to react more to Trump’s tweets than to corporate fundamentals. Daniel Popescu CFP, CIM, FMA, FCSI President & CEO “I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. 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