What a difference a year makes. Looking back to the end of 2018 things looked dire with equity markets in free fall driven in part by fears of central banks raising rates too soon. Fast forward to this holiday season and the story feels quite different with global stock markets gaining double digits across the board. Economic data, while lumpy, has been resilient, impressive given trade fears which gained steam throughout the year. Concerns surrounding the “will they / won’t they” trade deal feels like a bad soap opera or an 80’s sitcom. Add in Brexit fears and impeachment and it is impressive that equity markets were able to return to growth in the fashion they did. A lesson that the bark is often worse than the bite in terms of headlines versus underlying fundamentals.

Interest rates had a wild ride throughout 2019 with the Canadian 10 year falling from 2% to as low as 1.1% in mid August, finally settling back to 1.7% at year end. This volatility is the product of two forces. The first is simply economic uncertainty in a prolonged economic cycle where performance has been strong. Disproportionately however, as has been the case through much of the past 10 years, this volatility is being driven by central bank actions globally. As we enter 2020, fears surrounding monetary interventions have dissipated. In fact, it appears the bias going forward in the next 2 years is for higher rates which the market seems to have come to grips with given solid economic performance and historically low rates. We would accordingly continue to exercise caution in investing in longer term bonds which will lose value should rates rise.

After falling by double digits in 2018, the TSX had a healthy rebound in 2019 lead by performance in some high flying technology shares. Canadian oil stocks kept pace with the benchmark after a few years of disappointing results. Recent unrest in the Middle East is bringing the question of risk and political stability back to oil markets and may bring more attention to Canadian energy names. However, results will also be heavily reliant on progress with getting oil to foreign markets through proposed pipelines. Canadian banks, while underperforming the TSX in 2019, performed reasonably well with consistent returns all the while delivering growth in dividends. Concerns may exist around slowing loan growth and the domestic housing market, however valuations are very attractive for patient investors.

A thankfully fast election cycle in Canada resulted in the Liberals holding power in a minority government. Political gridlock should mean few major surprises for investors over the next little while. South of the border, a painstakingly long election cycle is just gaining steam as Democrats attempt to figure out the best path to the White House. In the short term, health care and other fiscal initiatives will dominate the public debate as it tends to do each election season. With that said, we have already seen the more progressive Democratic candidates back off extreme rhetoric and gravitating back towards the “Obamacare model” which had success despite some early growing pains. Accordingly, any short term volatility is most likely an opportunity to invest in companies with long term opportunities in new technologies and an ageing demographic.

Despite all the political and trade uncertainty in 2019 the S&P lead all global markets in 2019 heavily influenced by technology shares which now account for close to 30% of the benchmark. The S&P as an index is trading at its highest valuation in almost 20 years, in large part due to these technology shares. Software stocks in particular continue to ride momentum higher trading at valuations not seen since the year 2000. This should give investors pause although there are plenty of sectors and stocks which are interesting from both a valuation and long term growth perspective for those investors patient enough to avoid chasing the “herd” into a small number of stocks.

International stocks lagged broader markets but still managed a healthy gain in 2019 after falling in 2018. Concerns in Asia surrounding trade and political unrest in Hong Kong overshadowed securities in this region. In Europe, the Brexit saga and political upheaval in the UK caused a good deal of uncertainty for investors there. Resolution of these issues would be a welcome result for markets which abhor uncertainty and would present opportunities as valuations look attractive in these regions.

In 2019, Doherty celebrated our 40th year managing client portfolios. We have witnessed many market cycles, downturns and crashes. In almost all cases when these crashes occurred, investor greed was ultimately to blame and by that we mean chasing returns higher and higher with little regard to underlying fundamentals and especially valuations. In every case markets rebounded and rewarded disciplined investors. It is impossible to try to time the market. We can however do our best to manage risk and avoid areas which have signals of overheating. There are no shortcuts to investing and we will never sacrifice the integrity of our approach to chase short term trends. Our clients hard earned wealth is far too important to gamble in this manner.

Fashions and fads come and go, but to stand the test of time over 40 years requires discipline, consistency and hard work. It is this work ethic and discipline which supports our culture and philosophy and we believe will reward you, our client, going forward. We appreciate the trust you have placed in our firm and wish you and your families all the very best in 2020.