Q1 was the 6th most volatile quarter in the past 60 years. The S&P registered 26 days with greater than a 1% move. While the above average levels of volatility don’t portend any future direction for stocks, the current global environment gives us no reason to expect lower volatility going forward.
We review the Brexit situation in Europe, US Federal Reserve Policy and Canadian budget changes and then look at our advice for investors navigating these waters going forward.
Brits will go to the polls on June 23 vote on whether or not to part ways from the EU. An “Out” vote, although unlikely, would deal a heavy blow to an already weak Europe, uncouple the world’s 5th largest economy from its biggest market. Over 50% of British exports go to EU, tariff free. If Britain were to leave, tariffs would have to be renegotiated, there would be higher fees for membership in the EU and there is a heightened possibility of animosity being stirred up among other United Kingdom nations.
U.S. Federal Reserve Policy
The Fed left rates unchanged as expected noting that inflation is picking up at (2.3% increase year-over-year) and that since the U.S. economy is growing at a moderate pace, despite global risks, there will be less emphasis on global developments in future rate decisions. The statement was a boost to global markets mid-month as analysts now expect the tightening policy to roll out at a slower pace than previously indicated.
The new liberal government released budget for next 10 years this past month. The government will run up to a $30 billion deficit per year in order to try and spur growth. Much of the spending will go towards infrastructure projects and new benefits for middle class Canadians. The deficit will be financed by issuing more debt, taking advantage of the low interest rate environment. We cover the budget in more detail in a recent blog.
Fundamentally, despite the uncertainty from major markets, global liquidity is strong and earnings remain solid. Although the path remains unclear, we can say with some confidence that it is likely to be a volatile ride. For long term investors, positive or negative swings one way or the other along the ride should not change your end goal.