Investor confidence spurs market and economic growth

CWB Wealth Management’s President & CEO, David Schaffner, presented a market and economic update in Panorama.

David started with the overarching trends occurring in the global economy, including the recent upward trends in growth.

GDP growth in the US, Euro Area, Japan and Canada has been picking up, and continued growth is expected based off leading economic indicators. Canada, a laggard at the beginning of the year, has somewhat surprisingly shown the strongest growth of the group, along with Japan.

In light of this economic growth, central banks have responded by increasing their interest rates and stepping back from years of monetary easing, which were put in place to support economies after the 2008 recession.

...stronger economic growth means that the earnings companies make tends to grow as well. And as earnings grow, the market in general tends to rise.

“It’s been a bit of a positive surprise to the markets globally, and in turn, central banks (led by the US federal reserve and then more recently, the Bank of Canada) have been raising their short-term interest rates in response to this stronger than expected growth,” says David. He further explains that stronger economic growth means that the earnings companies make tends to grow as well. And as earnings grow, the market in general tends to rise.

This continued growth seems to fly in the face of a litany of geopolitical risks, including nuclear risk from North Korea and Iran and global terrorism. Despite these factors, the market seems to be up to the task of climbing the proverbial ‘wall of worry.’ And the biggest news stemming from this is the lack of overall effect from this risk, with the S&P 500 in the midst of the fourth longest streak since 1960 without a five per cent correction.

Investors have continued to drive equity markets upwards, with the weighting of information technology in the US stock market being relatively large as a result of FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks. These stocks have outperformed the S&P 500 by a wide margin as investors search for steady growth. In some cases, investors have pushed valuations to levels not seen since the tech market bubble of 1999 and 2000. “In the US in particular, those stocks are a big driver of the market returns – and that’s notable given that the valuations attached to those stocks are pretty sky high,” says David.

David reminds us that Canada had a strong performing market last year, and that this year’s good economic news was largely priced into the market last year.

Despite this market growth, and the anticipation that international markets will continue to outperform, up until recently, the Canadian stock market has seen lacklustre monthly returns of the TSX for each month this past year. However, David reminds us that Canada had a strong performing market last year, and that this year’s good economic news was largely priced into the market last year. He also notes that some economists feel this year’s strong growth isn’t sustainable, as it was driven by low interest rates, which the Bank of Canada recently increased, a one-time rebound in the energy sector, particularly after the Ft. McMurray wild fires, and hot housing markets in Toronto and Vancouver, which have recently been stymied by regulatory changes in an effort to cool them. Overall, he contends that part of Canada’s big increase in growth relative to the other major economies in the last year reflects a rebound from having much less growth in the past.

So what’s the best way to position oneself for all these factors occurring simultaneously in the market? “Our role at CWB Wealth Management,” says David “is to look at the bigger, longer term picture for the client. Planning and investments go together, and require integrated solutions. Since no two individuals or businesses are the same, we focus on personalized approaches for our clients to achieve their goals.”

CWB Wealth Management believes in looking at the long-term horizon and using comprehensive analysis to determine the optimal ways to invest. And they are guided by an investment philosophy that is rooted in enduring investments, sound decisions, effective asset allocation, concentrated portfolios and added value for fees — not in simply trying to ‘beat’ the market.

“I’ve been in this business over 30 years, and there really isn’t anyone who can consistently time the market well.” explains David. “That’s why we place so much emphasis on matching the right portfolio to your time horizon, your risk tolerance and your goals, because the reality is that it is difficult. Our team of advisors can then make the necessary adjustments to your portfolio to help you reach your long run goals.”

CWB Wealth Management is a division of CWB Financial Group, which is a diversified financial services organization that includes Canadian Western Bank (TSX: CWB) – the largest Schedule 1 bank headquartered in Western Canada. CWB Wealth Management provides planning, advisory and investment management services for a variety of clients from diverse sectors.

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