At time of writing the TSX is down about 7% year to date and the Dow and S&P are relatively flat. For most of the year the TSX lagging the US markets by about 7%. It was much more palatable a couple of months ago when we were 7% higher than where we are now, at least at that time the TSX wasn't in the red.
The events of October and November and more importantly December have spooked investors. Specifically, Trump's lack of clarity on trade with China and an inversion of the yield curve between the 2 and 5 year treasuries. Both of these things have increased volatility and heartburn for investors. Regarding China, keep in mind that as much as China is the largest trading partner of the US, they are only marginally ahead of the #2 Canada and #3 Mexico where we already have a deal.
Our positions is still and has been to stay the course. The fundamentals on which we make decisions have not changed. Unemployment is currently at the lowest lever in 40 years. Inflation is almost non-existent and interest rates, albeit rising slowly, are still well below long term averages. So what's the problem??
The last time we saw a drop like the one we had on Tuesday, Dec 4th was back in 2011. Investors have since been lulled into thinking that markets just calmly go up, as they have for the last 10 years. This recent volatility isn't fun but it will pass. Corrections like this are part of a healthy market.
Look at it this way. A 45 year old investor today, or advisor for that matter has likely only been investing for ten years, as 35 is the average age when people start to put meaningful funds away for the future. Ten years later after a 10 year bull run in the equity markets, and all of a sudden we have volatility. Really painful when you haven't experienced it before or for a long time.
It's not to say that we will never see a bear market again or that we won't ever have another recession. Given the above empirical data we don't think we are there yet and still have a bit of runway until we need to seriously batten the hatches.
So for now, our recommendation is to stay the course. After a bad correction, we will be looking for a Santa Claus Rally now or possibly a New Year’s rally.
Again, if you are unsure or not sleeping at night, let us know. We are, as always, here to talk.