Portfolio Manager’s Weekly Commentary

Daryl Cooper

July 15, 2016

Market Commentary
July 15, 2016

Brexit Bounce, scaling mountains, raining money and “Go and Poke-me-man – I dare you”

What a week or two, eh?  I figured our most famous slang was appropriate given how much we have witnessed since Canada Day.

Let us start with the rapid bounce in the markets since the recent British referendum. The US stock markets reached new highs (1-month S&P 500 returns pictured at right) this week on the back of better economic numbers and of course, Central Bankers raining money down on the market.  This market isn’t trading on fundamentals. It is a liquidity-filled event driven by Central Bankers flying around in helicopters and dropping money down to keep the market going. In six short months we have progressed from what appeCharging Bullared to be a certain and long overdue global stock market correction to new highs, with all indicators pointing to better times ahead.

Modern portfolio theory would have you believe that markets are efficient and rational. As the famous economist John Maynard Keynes stated, “markets can stay irrational longer than you can stay solvent”. And he is correct.  Having an actual game plan and a money management process is absolutely necessary in today’s world.

With the markets at record levels, it is normal that investors would get nervous. It is no different than the mountain climber who scales a mountain. He is putting his faith in his gear and his experience and his knowledge of the rock he is on. To conquer a climb requires confidence and faith to reap rewards.  A good mountain climber will have a safety harness in case he slips or something unexpected occurs. The world of investing is the same, having a defined set of rules can steer you out of trouble and allows you to achieve your goals.

We have no control over what the markets might do. In fact, there are so many things we have such little control over that we spend very little time worrying about them. What we do focus on is what we can control and that is where to invest.

S&P 500 Past Month. Bloomberg.comAt the present time we believe the markets appear to be set for higher returns over the next 10 to 12 months. We just came through 414 days without reaching new highs in the market, an event that has occurred 24 times since 1919. Of those 24 times, the market has been up over the next 12 months 91% of the time, with an average rate of return of 15.6% and the average correction around 5%.1 The chance of a major correction is substantially reduced, and once again we can thank the benevolence of Carney, Yellen, Abe, Draghi and so on. It is raining money and we get it, don’t fight the trend.

But we weren’t born yesterday and know that the fast paced world we live in now will provide us with some volatility. The fast pace is a result of technology.  Computing power is increasing rapidly and the cost is dropping. This is an economic benefit. If anyone has witnessed what appears to be a scene out of “The Walking Dead” lately it is the Pokemon Go app that is taking the world by storm. This is just one example of what is changing our world. While chasing Pokemon around is far from my cup of tea, it is a taste of what is to come. Consider that in 1996 the first computer to reach one Tereflop cost $55 million and was the size of a tennis court. 18 years later the Sony PlayStation 4 had almost twice the computing power at a cost of around $550!

Love it or hate it technology will revolutionize our lives perhaps more so in the next 15 years than anything we’ve experienced. It certainly has changed the way wealth management works.  The method of managing money has changed since the 1950’s and those caught in the same old will be left behind.

It is an exciting time and we will be here to guide you. It is our profession and our passion and we are grateful to be in service to each and everyone one of you.  Until next week, take care and have a great weekend.

Daryl Cooper
Portfolio Manager,
Director, Wealth Management

 

 

1 Why investors shouldn’t fear buying into the S&P 500’s breakout. Tomi Kilgore, MarketWatch. July 12, 2016. (http://www.marketwatch.com/Story/Story/?guid={FAA7CB52-4797-11E6-9F2F-8BE09981A39E})
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