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Another weak month for equity markets; despite a recovery from the sharp downdraft we saw at the beginning of February, markets are retesting their lows on fears of a trade war between the US and China. The TSX fell about 0.5%, the DOW was down about 3.7%, and the NASDAQ fell 2.9%. International markets were also weak, as the EAFE fell by 1.9%.
With the volatility we’ve seen in the “rollercoaster market” of the last two months, investors are starting to treat uncertainty and unpredictability as the new normal. However, we cannot stress enough that the action we’ve seen in the markets is driven almost entirely by investor sentiment, and is almost completely independent of the actual strength of the economy – notwithstanding the “threat” of the aforementioned trade war with China (which is being viewed by analysts as “highly unlikely”). For those concerned that the volatility could lead to a drastic downturn in the markets, a report produced by our Portfolio Advisory Team suggests that the likelihood of a recession at this stage in the market is about 15% – again, “highly unlikely”. We continue to recommend buying on market weakness and getting into undervalued quality stocks wherever possible.
On another front of the political stage, concerns about NAFTA are finally starting to slowly recede, as efforts are made by all parties to reach a conclusion. It’s worth mentioning that between NAFTA and China, this is pretty par for the course for Trump’s business dealings – that is, starting with an outrageous claim and a lot of bluster, then negotiating back down to a position that benefits him without alienating the other side. We believe that the ongoing crossfire between the US and China over trade and threats of tariffs on imports and exports – while unfortunate that it keeps making headlines! – is simply “the art of the deal”.