This month, we take a look at how markets performed in Q3, and where they stand going into the final quarter of 2016.
Global central banks and governments play a significant role in shaping returns in markets, and uncertainties about how this will influence the markets will create some volatility. A benefit to this intervention is that governments have continually demonstrated they're not willing to let any ships sink. This gives investors some clarity about what to expect if waters get choppy.
This type of government intervention has played a significant role in performance to date and will continue to going forward.
Q3 was a relatively solid performing quarter. Central banks expansionary policies have lifted markets, and volatility has generally been muted. But looking back over the year, we see a different story.
* Market Indices – CAN – S&P TSX, US – S&P 500, Global Developed - FTSE Developed All Cap ex N.A. Index, Emerging Markets - FTSE Global All Cap ex Canada Index, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index
The Canadian market performed well, but there was a large influence from an overheated housing sector rather than the traditional sectors of commodities and financials. Commodities had a particularly fragile year, and the banking sector is actively cutting jobs.
On the back of global central bank stimulus, the market has been showing us a surprising risk on sentiment as emerging markets and smaller cap companies have out-performed. Yet due to weakness in Japan and uncertainty around Brexit, the broader rally has generally skipped over many developed nations.
Looking forward to Q4, here are a few highlights we believe will steer the markets.
- Changes to housing regulations are expected in Canada, particularly a crackdown on the taxing of capital gains. This should remove fuel from the overhead housing prices.
- Equity markets are pricing a win by Clinton in regards to the US federal election. A Trump victory would be a surprise, and investors don't like surprises.
- Analysts are expecting a Fed rate move in December. As we've said in the past, this is a positive sign that the economy is picking up.
- The European Central Bank and Bank of Japan want to continue their stimulus programs but may look to new ways to do so, like fiscal spending.
- Earning season is around the corner, and with markets near record highs and earnings coming in soft, you can expect some volatility.
To conclude, the market is ripe for more volatility and governments and central banks continue to play a significant role in shaping the demand for equities. In these choppy waters, keep your eyes on the horizon and stick the course!