Market Outlook

The two interest rate increases by the Bank of Canada would arguably be the most important development in the past few months, as we are now seeing the consequences. On Friday we had the August retail sales report, which shed light on consumer spending. Overall sales fell 0.3 per cent, excluding autos sales falling 0.7 per cent. These are sharp reversals from July’s moderate gains.

The first rate hike was on July 12, so August would have felt the impact. The second hike was on September 6, so wait for September and October numbers to tell us the impact of the second hike. In the three months ending August, Canada has lost 10 per cent of our exports, because the Canadian dollar was too strong. July GDP was flat. The element of surprise is arguably the most potent tool in a central bank’s tool box, and those two hikes did exactly that. Also, the elevated levels of household debt will amplify the impact of the rate hikes. So the Canadian economy has a lot to deal with, apart from NAFTA and new regulations on housing.

South of the border, things are volatile to say the least. Tax cuts are more difficult than health care reform. Passing the budget is a good start but there are lots of hurdles ahead. Look no farther than Canada and our struggles with our attempt to introduce tax changes. There are lots of uncertainties.

This is a challenging environment for investors. Active management is Caldwell’s philosophy and that is more important now than ever. When you use a robot advisor to buy ETFs, you are buying the whole market - that is, you are buying the good with the bad. Inside our Funds, our focus is selective U.S. stocks (as the Canadian dollar should go lower from here) and Canadian stocks that satisfy our requirements of possessing "value" and "momentum." They are often under the radar of most large mutual funds (they all hold the same stocks).