2018 Why Are Global Markets in a Correction? Danny Popescu 02/09/2018 479 0 Comments Good day, As I type this, North American markets are hovering around correction territory. The definition of a market correction is a 10% decline or more from the peak and the S&P 500 is showing a 10.4% decline, The Dow Jones 10.8% and the TSX a 9.19% decline as I type this. The definition of a bear market is a 20% decline and it remains to be seen if we get there or not. While regular corrections are healthy for financial markets, my view is that reaching and putting a bear market behind us would prove to be a sigh of relief given that the current bull market is nearing 9 years. Such a long period without a bear market is a psychological barrier for investors which can hold markets back from reaching their full potential. A bear market would also bring value investors to the table in addition to those investors who have sat on the sidelines waiting for a meaningful dip. Fundamentally speaking, whether we wish for one or not, a bear market shouldn’t occur as the global economy is strong and corporate earnings continue to grow. Argus, one of our research providers in the US has done my work for me today and provided a very good overview of why the markets are in correction territory. See below: “After a strong start to the year that carried across most of January, stocks struggled at month’s end and were slammed early in February. In fact, stocks are now experiencing their first meaningful selloffs since the twin corrections around Brexit (-3.8%) and the U.S. pre-election 2016 summer (-4.5%). The S&P 500 experienced a steeper selloff (-11.2%) from December 2015 to February 2016 amid the trough in energy prices. The U.S. stock market did not experience a single sizable (5%) correction in 2017. Why are stocks selling off now? Investors cannot point to the usual suspects. Unlike two years ago, when investors feared that weakness in energy prices signaled declining global demand, the global macro environment is at its strongest level in years; after 3.7% growth in 2017, the IMF forecast global GDP growth of 3.9% in 2018. The weak dollar is helping to lift commodity prices, whereas two years ago the strong dollar was making oil cheap and most oil producers unprofitable. Regardless of why stocks are selling off, we see no signs that this long-running bull market is at risk of falling into a bear market. The economic and earnings fundamentals remain compelling, as we detail below. The stock selloff in early 2018 has several causes. The rise in bond yields has been interpreted as a preemptive strike against inflation; and inflation has proven in the past to be a surefire stock rally killer. After several strong years, the U.S. consumer may finally be taking a pause. In addition, apart from post-hurricane rebuilding, neither housing not automotive appear particularly robust. The main correction driver may simply be profit-taking following a strong 2017 and an eye-popping January 2018. Stock selloffs are nerve-wracking but necessary. Market complacency such as that seen in 2017 saves investors from short-term worries about wealth accumulation. The lack of periodic selloffs, however, increases the risk that the market will become toppy and prone to steeper falls. Corrections can be thought of as bad-tasting medicine that, like castor oil, can keep the market mechanism functioning smoothly.” Have a good weekend! 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. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.” Disclaimer – This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing, and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The information is provided with the understanding that Harbourfront Wealth Management is not herein engaged in rendering legal, accounting, tax or other professional advice. While we have made every attempt to ensure the information contained in this document is reliable, Harbourfront Wealth Management is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or as to the outcome to be obtained from the use of this information, and is without warranty of any kind, express or implied. The opinions expressed herein do not necessarily reflect those of Harbourfront Wealth Management Inc. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are not to be construed as a solicitation or offer to buy or sell any securities mentioned herein. Harbourfront or any of its connected or related parties may act as financial advisor or fiscal agent for certain companies mentioned herein and may receive remuneration for its services. The comments and information pertaining to any investment products (The Portfolios) sponsored by Willoughby Asset Management are not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units of The Portfolios is made pursuant to the Offering Memorandum or Simplified Prospectus and only to investors in Canadian jurisdictions. Important information about The Portfolios is contained in the Offering Memorandum or Simplified Prospectus available through Willoughby Asset Management. Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with investments in The Portfolios. Investments in The Portfolios are not guaranteed, their values change frequently, and past performance may not be repeated. Historical annual compounded total returns including changes in unit value and reinvestment of all distributions do not take into account sales, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Unit values and investment returns will fluctuate and there is no assurance that The Portfolios can maintain a specific net asset value. Harbourfront Wealth Management Inc. (“Harbourfront”) has relationships with related and /or connected issuers, which may include the securities or funds discussed in this commentary and are disclosed in our Statement of Policies Regarding Related and Connected Issuers. This policy is included in your new client package, on our website, or can be obtained from your investment advisor on request.