This week brought the arrest of the CFO in Vancouver of one of China’s major tech companies, the subsequent arrest of two Canadians, softer numbers out of China and Europe and a solid sell-off on Friday putting all three US indices in correction territory for the first time since March 2016.

After the lows in early February 2016 for the S&P 500, the index ran upwards for next two months reversing almost all of the loses.

Mind you we didn’t have the backdrop of trade wars, but we did have rising interest rates, which bottomed out in July of that same year.

We will be looking to make one small change as discussed in the conclusion section.

Distractions

The US removed support for Saudi military operations in Yemen however this comes after a ceasefire has been agreed to.

US Solar installations in Q3 fell 30%.

Virgin Galactic took flight this week reaching an altitude of 80 kilometers which is considered to be on the border of space. The pilots will receive commercial astronaut wings.

The Facts

Monday:

  • Canada Building Permits MoM -0.2% from 0.4%
  • US JOLTs Job Openings 7.079M from 6.96M
  • China PPI 2.7% from 3.3%
  • China Inflation Rate YoY 2.2% from 2.5%

Tuesday:

  • Germany Exports 0.7% from -0.4%
  • Germany Imports 1.3% from 0%
  • UK Manufacturing Production YoY -1% from 0.5%
  • UK Industrial Production YoY -0.8% from 0%
  • US Core PPI YoY 2.7% from 2.6%
  • US Redbook YoY 6.6% from 7.0%
  • UK Employment Change 79k from 23k

Wednesday:

  • Canada Capacity Utilization 82.6% from 84.1%
  • US Core Inflation YoY 2.2% from 2.1%
  • US Headline Inflation 2.2% from 2.5%

Thursday:

  • US Initial Jobless Claims 206k from 233k

Friday:

  • Canada New Motor Vehicle Sales 165.5k from 178.9k
  • US Markit Manufacturing PMI Flash 53.9 from 55.3
  • Germany Manufacturing PMI Flash 51.5 from 51.8
  • China Industrial Production 5.4% from 5.9%
  • China Retail Sales YoY 8.1% from 8.6%

Conclusions:

The US Manufacturing PMI is still far off of the 50 contraction point and has had retractions in 2014 that lasted into 2016. This is very reminiscent of that where there were concerns that growth was slowing and interest rates were rising to a point that would tip the economy into a recession.

In that period risk aversion stocks such as dividend focus, utilities, pipelines all did well in that period.

This week I noticed that the utilities sector in the US faired much better than the other sectors and as long as uncertainty regarding trade disputes continues at this levels, investor and corporate sentiment will remain conservative. Had the trade disputes not been happening, companies likely would have been spending more, hiring more and producing more which would have warranted higher interest rates.

The trade disputes have stunted the expansion along with Brexit and the recent drop in oil prices which will weigh on inflation data.

All this pointing to lower than expected interest rates as there will likely be less than four interest rate hikes over the next 12 months in our opinion.

Therefore we are looking to shift a little to dividend focus stocks for the medium term but only a portion of the portfolios. We will look for an opportune time to do this.

Weekly Wealth Tip

Insurance, wills and power of attorney are things that many people don’t get done, wait too long to do or don’t update.

I, myself, waited far too long to get our wills and powers of attorneys done. The cost was relatively inexpensive, less scary than originally though and the peace of mind that my wife and I have now that these things are behind us was well worth the money.

On the insurance side I had heard the argument that you want to get insurance while you are still insurable. In my 20’s I never saw the relevance however in my 30’s with many friends having or dying from cancer, accidents and suffering from bouts of disability it has become apparent that getting something in place prior to an incident is crucial.

The same goes for having credit in place prior to losing a job.

Be prepared or scramble at the last minute.

A saying that I once heard has stuck with me and I remind myself of it all the time. The harder I work and the more I prepare, the better the luck I have.

Call us for an insurance discussion so that should anything happen you can enact the plan that is already in place and be one of those “lucky” people that did the work before hand by being prepared.

Until next week.

Trevor Dale, CFA