Based on seasonal trading charts we are in the most volatile two month period (approximately August 20 until October 20, 2018) of the year for North American stock markets. There are many theories as to why this happens, but there are no really concrete answers. I tend to be a little more cautious during this time period carrying more cash in an account if possible. With US midterm election this November the US government’s policies and comments coming from President Donald Trump became even a bigger factor and distraction for stock markets.
So far US stock markets are performing well, with strong economic and corporate earnings playing a major role. Trade tariffs have had a limited impact so far and if more US trade deals are negotiated like South Korea and Mexico have accomplished the fears of a major trade war subside. Canada needs to negotiate a trade agreement with the US either bi-lateral or tri-lateral which includes Mexico. The Canadian economy is very dependent on trade especially with the US so becoming part of a trade deal is very important to us as Canadians.
The other major US trade irritant is with China and this trade dispute is far from being solved. There have been some lower level trade talks but threats of more tariffs being implemented are still being made. As an investor one believes that the stock market adjusts for what potential risk exists in the country, region and globally. Based on this assumption the Chinese markets are telling us that a trade war between the US & China would hurt the Chinese economy much more that the US. YTD (year to date) some Chinese stock markets¹ have negative double digit returns from their highs while the US stock exchanges are up YTD and are globally some of the strongest markets. If this plays out as investors are telling then China should eventually be forced to negotiate a trade deal which the US will accept. Only time will tell how much pain China is willing to accept to its economy and stock market, but being a communist country it may be greater than one would think.
In summary looking out over the next six to twelve months I see interest rates slightly higher and most global stock markets providing decent returns. As always if you have an questions or comments please contact me.
Bill Achtymichuk
¹ Shanghai and Hang Seng Indexes