Keep Calm and Carry On

The fourth quarter of 2018 served as a stark reminder that the combination of modern technology and fragile human emotion can periodically wreak havoc on day-to-day equity valuations.  Despite ongoing solid fundamentals (low interest rates, tame inflation and good corporate profits) global capital markets gyrated wildly as the year drew to a close. Markets ended 2018 broadly lower for the first time in over 5 years.  There is no question that seasonality was a factor – most notably a four trading day 8% decline leading up to Christmas Eve followed by a one day 5% Boxing Day rally – but so was a change of leadership and tone at the Federal Reserve, ongoing European political anxieties and the fallout from bewildering policies and tirades emanating from the Oval Office.  Looking ahead, here is our investment advice and outlook for 2019:


  • Spotlight on Asset Classes– Asset allocation rather than single security investing is the key to rising above the daily gibberish from financial pundits and the media. The biggest single risk in the current environment remains being out of risk assets because of volatility.
  • Maintain Maximum Equity Exposure –Volatility, while uncomfortable, is no reason to abandon a healthy allocation to stocks.  In the wake of 2018’s correction, major equity indices offer compelling value at current forward P/E ratios and dividend yields when compared to returns on cash and government bonds.
  • Attractive Ex-US Equity Valuations– Uncertainty prompted indiscriminate selling of Canadian, European and large cap Asian equities in 2018.  This has resulted in an attractive entry point.  We believe non-US equity indices will outperform the S&P 500 considerably over the next 12 months and that the US Dollar Index will peak.
  • Shift from Narrow to Broader Market Leadership– Over the past two years, the US Technology sector has accounted for most of the rise in equity index values. We expect a more broadly-based rise in global equity markets to support our bullish position on international stocks in 2019.
  • Focus on Your Investment Time Horizon – Experiencing negative annual investment returns is not pleasant but is quite rare for balanced portfolios. Remember that a minimum investment horizon should be three to five years.  Periods following market turbulence generally initiate new investment cycles that are best captured through portfolio rebalancing.