Markets took a breather in the second quarter relative to the torrid pace we witnessed in the first quarter of 2019. Concerns persisted around pending trade deals and uncertainty in the middle-east; however, markets managed to hold on to their gains after a strong first quarter. Ultimately, the “fed put”, or the idea central banks will step in with monetary stimulus, has continued to buoy the markets and push valuations higher.

In Canada, the economic news continues to trend positively as job gains for the first six months of the year are moving at an impressive pace, and the unemployment rate hit a decade’s low 5.5%. Against this backdrop, equities were up slightly in the quarter and the Canadian Dollar strengthened versus the US Dollar. Gains in the TSX were driven by technology shares, offset by a decline in marijuana stocks which gave up close to 1/3rd of their gains for the year. We would expect this type of volatility to persist in both these areas as high valuations, coupled with uncertain business models, are a recipe for elevated risk.

In the US, the S&P eked out a small gain as the Federal Reserve didn’t disappoint investors, inferring they would not be taking a hard line against inflation. With that said, wage gains continue to accelerate and this is likely to eventually put pressure on prices, and ultimately could cause the Federal Reserve to raise rates. Of course, with current leadership negotiating broad trade agreements and international diplomacy on Twitter, it would be very difficult to predict what could happen in the near term, both positively or negatively.

International markets followed the lead of North American markets - effectively flat for the quarter. The environment remains challenging with political uncertainty in Germany and the UK amongst others. Brexit passed through another “deadline” with the ECB and the Bank of England indicating they would not hesitate to increase stimulus if there were any risks to growth. With a hard Brexit looming in the second half of the year, this could come to fruition.

Recently, we completed our annual comprehensive 'deep dive' on portfolio holdings and potential new ideas. While this is an ongoing process, this annual review provides an opportunity to further emphasize our conviction around the portfolio and look towards new opportunities. We of course consider this in the context of the current macro environment; however, when looking at individual companies that fit our philosophy, we are considering management teams and business models that will be successful in the long run.

One of the outcomes of this review was that we trimmed some equity positions, given elevated valuations. That said, we remain confident in all our holdings and in fact would look to any 'pullback' as an opportunity to either add to existing positions and/or introduce new ones. We will remain vigilant in managing risks and take advantage of opportunities as they arise.

Should you have any questions or concerns, please do not hesitate to contact us. We wish you and your families a very enjoyable summer.