Market Commentary: A Q&A with Geoff Funke

Looking forward to 2018

December 28, 2017

Happy holidays, everyone! We hope you had a wonderful Christmas with family and friends, and send our best wishes for a joyful and prosperous 2018.

As we begin a new year, let’s take a look back at what made headlines in 2017 as well as what we can expect going forward. With a fantastic year just behind us, there is much reason to be optimistic about what lies ahead. Thanks for reading, and please feel free to contact me if you have any questions.

What was the most unexpected market news of 2017?

We definitely need to give more than one answer to this question, as it was such an interesting year for the economy and in wealth management. With the U.S. election at the end of 2016 and Donald Trump being sworn in back in January, there were concerns at several levels. Many of us expected a market correction sometime in 2017 but in the end, all we got were minor ups and downs with the loonie. This made for incredible returns and a very profitable year for clients. There was a full percentage gain in the U.S. markets, which surprised many. Furthermore, relatively new industries and investments such as Bitcoin and marijuana stocks were popular topics of conversation (and debate). Overall, it was a very interesting and newsworthy year in finance – it will be exciting to see what 2018 brings!

What will be the impact of the change in government here in BC from Conservative to an NDP/Green Party coalition?

The impact of this coalition is still yet to be seen. There is definite angst over changes already made, the impact to the deficit and what it will mean for taxpayers. Elimination of the toll bridges and that loss of revenue will have some reaction and affect on us all – the money will have to come from somewhere. Delays or possible cancellation of proposed pipelines could also have a significant impact. BC’s economy has largely been fueled by our real estate market – in fact, it was reported earlier this year that the real estate and rental market was more important to BC’s economy than oil was to Alberta. While oil gas, mining and quarrying made up 16.98% of Alberta’s gross domestic product (GDP) in 2016, real estate, rental and leasing industries accounted for 18.36% of British Columbia’s GDP (Stats Can). Those numbers are hard to ignore, and a correction there could have a significant impact to our economy. We will continue to watch this story unfold.

What do you see happening in the economy in 2018?

Many are suggesting a possible slowdown in the U.S. economy for 2019. If history holds true, that would mean the market would start to make some moves by summer (usually six months in advance). I have two issues with this prediction, personally. First, the variables that suggest a slowdown rely on too many assumptions. If these assumptions do not come through, there is no merit. Secondly, too many people are suggesting a slow down in 2019. Usually, when everyone is saying that something is going to happen to the economy, it doesn’t.

One thing I have learned in my career is don’t fight the trend. Currently, that trend is upwards. Sometimes (as a matter of a fact, a lot of the time) that won’t make sense…but stay with me. There is no one person in the world who can irrefutably explain why the markets move up or down as they do. That said, market trends can be followed. Typically, when a market begins to move one direction, it will continue this pattern. When or why the trend changes in direction are usually for reasons unknown. Known variables are typically priced into the markets.

Currently, this uptrend has lasted a very long time – to my estimate, since January 2016. Are we overdue for a correction? 100% yes. How long have we been overdue for a correction. Nine months, at least. How much has the market moved up over those nine months? Double digit returns. Trying to guess, and yes I say guess when a market correction will happen is a fool’s game. When it happens – not if, but when it happens – a decision will need to be made. So is the current uptrend over and now we are heading downward for some time? The answer is not in the markets itself, but will come from what is happening in the economy. If the economy is in good shape with earnings growing, GDP growth and various other indicators, then a correction will be short term. If there is a deterioration in the economic numbers, then changes may need to be made.

The short version: As it stands, the economy still looks strong in the U.S. with no real signs of that changing in the near future. We will continue to monitor this situation, but I feel very comfortable with how everyone is currently invested.

Thanks again for reading, and please contact us if you’d like to discuss your investment or wealth management options. Happy new year!