US stocks just logged one of their worst monthly performances in over two years. More important, volatility has returned following several years of remarkably low levels. Understandably, this has rattled many investors and, given the scope of the selloff, some are beginning to question the resiliency of US stocks. However, we believe it is times like these when investors must keep things in perspective and stick with their investment discipline since reactionary decisions typically do more harm than good for investment returns.
Given the continued good economics in the US, namely low interest rates, inflation and unemployment, we believe that that US stocks should finish the year at higher levels than they are right now. Typically, the months following a correction in a bull market provide exceptionally good performance (see below). By extension we also expect that the Canadian markets will end the year higher, but to a lesser extent than the US.
Our priority order for equities continues to be International (Europe and Emerging Market Asia), US and Canada.