The first quarter of 2017 sustained some of the momentum from last year with the S&P rising 6% and the TSX managing a small 2% gain.  President Trump continues to dominate the headlines with his unconventional approach.  Underlying all of this however are important observations as to how effective this new administration will be in implementing some of the policies and stimulus previously discussed.  Geopolitics have also been front and center from Russia and Syria to North Korea bringing uncertainty and concern for investors.  That said, economic signals continue to point to a healthy expansion in global economies.

In the US, the new administration had two large failures in its attempt to dramatically restrict immigration and replace Obamacare.  The immigration policy did not seem well thought out and was poorly executed. The healthcare repeal was also rushed and failed to muster enough support even though Republicans had a majority in each house. Markets initially took this as a negative for future legislative attempts to lower taxes, pass a budget and invest in infrastructure.  It appears that support from Trump’s own party is tenuous at best and likely to remain dysfunctional.

From a Canadian perspective, there were some positives both domestically and from the U.S.  It appears that the Americans will be a little more subdued in seeking changes to the Canadian side of NAFTA after much lobbying from the Canadian Government. Trade between the two countries is fairly balanced but Canada may still have to give up something on lumber or dairy. Economically, Canadian GDP accelerated in the 4th quarter and into the first month of 2017 and jobs growth has been impressive.  We are likely seeing the lag effect of a weak dollar which is a benefit to exporters who have increased hiring recently. 

We would also be remiss not to mention the Canadian budget, as many investors feared an increase to the capital gains inclusion rate, which did not materialize and appears to be off the table for the foreseeable future. The budget’s emphasis on manufacturing, exporting and education are welcome, however the infrastructure plans remain vague.  With the economy on a better footing and monetary stimulus likely to tighten it will be important to see how the government will implement fiscal stimulus.

Internationally, concerns persist politically as the French face a critical election in May.  On a positive note, the push towards populism and economic nationalism took a small blow as an extreme right nationalist party in the Netherlands lost their leadership bid.  Importantly we have also seen a continuation of the positive economic trends that emerged in 2016, despite political challenges.  

At a time when equity markets have persistently performed well and valuations hover at or above fair value, we continue to diligently review all stocks in our portfolios for risk, either to earnings or to their valuation.  At the same time, we will look for undervalued companies that may be out of favour to add to client’s portfolios, with the emphasis on risk management.  Volatile markets present opportunities and we will be sure to take advantage in a responsible manner while working to protect clients’ hard earned wealth.  As always, please do not hesitate to contact us if you have any questions.