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Global and North American equity markets continued their ascent in the second quarter. The S&P 500 surpassed its all-time high from September 2018 and gained another 3.8% in the last three months. Meanwhile, the Canadian S&P/TSX index was up a more modest 1.7%. Year to date, the S&P/TSX Canadian index is up 14.4% while the S&P 500 US index advanced 17.4%. Inside the equity markets, information technology continues to be the best performing sector while energy is trailing behind, though still positive since January.
The Model Portfolio was up 1.1% in the last three months. Since January, the Model gained 7.9%, lifted by its equity component. Though investors will continue to experience setbacks like the ones experienced in the last quarter of 2018 or more recently in the month of May, we strongly believe owning high quality companies at reasonable prices will continue to be a winning formula for our clients.
The economic backdrop of trade uncertainties and heightened geo-political risks are hurting global sentiment and the outlook for economic growth. We are back to having clear signs of a shift that more monetary stimulus is to be expected. Consequently, in anticipation of these rate cuts, bond yields have plummeted globally in the last quarter. Yields are negative in many countries in Europe and very low in North America. In Canada, though rates are still positive, when factoring for inflation, real rates on Government of Canada bonds are negative at the moment.
As we head into the second half of 2019, we continue to believe that the expected return for equities is more attractive than those for bonds or cash. While equity markets face a headwind as the global economy cools, given the relative valuations between these asset classes, we believe equities have a high likelihood of outperforming bonds. The primary reason for this is the outlook for interest rates, as further discussed in the equity section.
In the tax and estate section, we discuss the benefits of using securities with large capital gains for donation purposes. We also highlight the importance of a proper estate plan to protect your family wealth.
1. Make 2019 RRSP contribution as soon as funds are available. The maximum is 18% of 2018’s earned income to a maximum of $26,500.
2. Make 2019 $6,000 TFSA contribution as soon as funds are available.
3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors
11 Sources: Bank of Canada, Bloomberg, BMO Capital Markets