By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: September 6

Sep 6, 2019 | 5:57 PM

Big Picture

Bank of Canada Holds Steady; Markets Rally Over Hopes of Trade Truce

The Bank of Canada (BoC) kept its key interest rate unchanged at 1.75% Wednesday but indicated the U.S.-China trade war is wreaking more havoc on global growth than previously thought. The central bank’s decision did not offer a clear indication of its longer-term plans. In related news, the loonie posted its biggest gain in seven months against the U.S. dollar on Wednesday on lowered expectations for a BoC interest-rate cut in October. The loonie surged even higher in early trading Thursday but settled around US75.5 cents in late afternoon trading.

Earlier in the week on Tuesday, U.S. stocks and government-bond yields slumped as fresh data showed that the U.S. manufacturing sector contracted in August, adding to worries about the global economy. New data released showed that the Institute for Supply Management’s gauge of U.S. factory activity slipped for the first time since 2016. The Dow was down 285 points Tuesday, while the TSX dropped 43 points in response to a sharp slide in energy prices. However, stocks rebounded worldwide on Wednesday, and the U.S. Treasury yield curve steepened, as easing geopolitical concerns and upbeat economic data from China helped allay investors’ fears. North American markets surged even higher Thursday after the U.S. and China said they would hold talks in Washington in October, reigniting hopes for an eventual trade truce.

Finally, in the U.K., the pound recovered ground as a parliamentary vote in Britain Wednesday raised hopes that the nation’s no-deal exit from the EU could be postponed. However, Prime Minister Boris Johnson has signaled that he won’t comply with the directive to seek a Brexit delay. The legal and political consequences of such a defiance of Parliament remain unclear.

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Markets

N.A. Markets Bounce Back

For the three days covered in this report following the Labour Day holiday, the Dow gained 325 points to close at 26,728, the S&P 500 climbed 50 points to settle at 2,976, while the tech-heavy Nasdaq added 154 points to close at 8,117. In Canada, the TSX was up 133 points to end at 16,575.

Equities/Strategy

Strategy

Maintaining investment discipline is becoming increasingly important. Overreacting to short-term noise or normal market fluctuations can lead to inappropriate portfolio decisions and negatively impact the ability to reach long-term goals. Several strategies can help maintain composure through equity market turbulence: (1) putting the current environment into perspective, (2) taking a long-term view, and (3) ensuring appropriate diversification. Pullbacks are normal even in periods of outstanding market returns. Markets experienced double-digit intra-year losses averaging 14% in 22 of the last 39 calendar years, but still delivered positive annual returns 29 times over the same period. Given the age of the current economic expansion and a variety of macro and geopolitical headwinds, we expect volatility will remain elevated.

(Bill Curry)

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