Canada

The third quarter saw continued uncertainty in the global economy and an escalation of the geopolitical tensions that have been building all year. Despite the headwinds of slowing growth and growing uncertainty, markets overall were able to post moderately positive returns. The subdued performance hides a significant level of volatility as both equity and fixed income returns fluctuated sharply at several junctures during the period.

The results of the Canadian Federal election, which happened after quarter-end, look to satisfy no one. The Liberal government was humbled by losing their majority in Parliament and by losing the popular vote, while the opposition Conservative party was unable to convert their popular vote plurality into a parliamentary victory. The outcome suggests a continuation of current policy direction with the potential for increased spending because of the need for the minority government to attract votes from other parties (notably the NDP) in order to pass legislation.

Slowing but positive global growth.

We are starting to see the expected deceleration, but the long economic expansion should continue into 2020-21.

Continued central bank tightening.

Central banks have reversed their posture and are lowering rates and adding liquidity in the face of a slowing global economy.

Interest rates and inflation drift higher.

Inflation has remained subdued and global demand for income has driven interest rates lower this year. Rates are likely to retrace some of the drop experienced late in 2018 and the first half of this year, but any increase is now likely to be modest.

Moderate equity returns.

Although economic growth and earnings growth are expected to slow, we are expecting continued economic expansion. This should leave room for modest gains in equity markets over the medium term.

Persistent volatility.

Ongoing uncertainty on trade and politics should continue to dominate the headlines for some time. While our expectations are for moderate, positive returns, we do expect the level of market volatility to remain elevated.

Maintain a long-term perspective

We continue to expect moderate but positive economic growth over the medium term, but conditions persuade us to remain neutral in our allocation to equities overall.

Plan for volatility

As we work through global trade negotiations, political wrangling and geopolitical tensions, we expect the headlines to provide momentum for strong moves in markets, both higher and lower.

Ensure you are diversified

We continue to recommend a balanced, well-diversified portfolio to our clients and encourage rebalancing towards asset allocation targets if the market takes them off course.

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