{"id":134,"date":"2015-09-01T10:26:52","date_gmt":"2015-09-01T14:26:52","guid":{"rendered":"http:\/\/www.goodwoodfunds.com\/dev\/?p=134"},"modified":"2019-09-01T10:28:47","modified_gmt":"2019-09-01T14:28:47","slug":"chris-currie-comments","status":"publish","type":"post","link":"https:\/\/www.goodwoodfunds.com\/index.php\/2015\/09\/01\/chris-currie-comments\/","title":{"rendered":"Chris Currie Comments"},"content":{"rendered":"\n

It\u2019s a Recession \u2013 Now What?<\/a><\/p>\n\n\n\n

And what does that mean for client portfolios? <\/h2>\n\n\n\n

The R-word. Two consecutive quarters of negative growth mean Canada is in recession. What does that mean for client portfolios?<\/p>\n\n\n\n

Real GDP contracted at an annual pace of 0.5% in the second quarter of the year, which followed a revised decline of 0.8% during the first three months of 2015. The last time the economy contracted over two consecutive quarters was 2009, when GDP fell 8.7% in the first quarter and 3.6% in the second.<\/p>\n\n\n\n

On the positive side, Canada\u2019s economy did bounce back in June: GDP grew 0.5% for that month.<\/p>\n\n\n\n

What it means<\/strong><\/h2>\n\n\n\n

The economy\u2019s modest contraction in the first half of the year \u201calmost entirely reflects a dramatic cutback in investment in the energy sector,\u201d Robert Kavcic, senior economist at BMO Capital Markets in Toronto, told Advisor.ca in an email.<\/p>\n\n\n\n

\u201cOther areas of the economy such as consumer spending, residential construction and net exports were actually still growing. Also, outside of energy-producing provinces, economic activity continued to expand. So, in other words, any \u2018recession\u2019 still looks strictly confined to the energy sector and energy-producing regions.\u201d<\/p>\n\n\n\n

Desjardins senior economist Benoit Durocher adds that Canada\u2019s -0.3% growth so far in 2015 isn\u2019t severe. \u201cIn other recessions, the cumulative decrease is [usually] -3% to -5%.\u201d<\/p>\n\n\n\n

Today\u2019s numbers don\u2019t meet everyone\u2019s definition of a recession. Avery Shenfeld, chief economist of CIBC World Markets, says that while growth has stalled, our employment levels haven\u2019t dropped.<\/p>\n\n\n\n

\u201cIf growth in the second half is positive, and we don\u2019t get a drop in employment, this will just be considered a pause in expansion,\u201d he says. \u201cIt\u2019s simply too early to register a final verdict.\u201d<\/p>\n\n\n\n

And the June numbers signal the economy could actually grow in the third quarter, Shenfeld says.<\/p>\n\n\n\n

Auto sales and production did well in July, and positive overall growth in June could carry into later months. He adds that the federal government\u2019s Universal Child Care Benefit cheques, delivered in July, increased consumer spending power.<\/p>\n\n\n\n

Economic indicators for the third quarter will start coming in next week, when Statistics Canada reports July export numbers. Durocher says they and the July manufacturing sales and GDP levels, due out later this month, will show whether the economy is recovering.<\/p>\n\n\n\n

Will BoC cut rates again?<\/h2>\n\n\n\n

Kavcic says the GDP data \u201cprobably won\u2019t sway the Bank of Canada to cut rates again\u2014their forecast was assuming a modest decline through the first half of the year.\u201d He adds that if the Federal Reserve raises rates later this year (or even this month), as many expect, \u201cthe Bank [of Canada] should be comfortable keeping policy steady.\u201d<\/p>\n\n\n\n

Durocher agrees, but warns that if economic growth doesn\u2019t materialize as expected in Q3 and Q4, we could be in for an end-of-year cut.<\/p>\n\n\n\n

In the U.S., there are signs the Federal Reserve may delay its rate rise, says Chris Currie, portfolio manager at Goodwood Funds. The Fed\u2019s latest minutes emphasized that inflation is well below target. \u201cGiven that they\u2019re not seeing inflation, I don\u2019t think there will be a September rate hike,\u201d Currie notes, though he adds the Fed has been signaling it will raise rates eventually.<\/p>\n\n\n\n

Investment implications<\/strong><\/h2>\n\n\n\n

From an investment point of view, today\u2019s GDP news doesn\u2019t change much, says Jay Nash, portfolio manager at Roberts Nash Advisory Group, National Bank Financial, in London, Ont. \u201cThis morning\u2019s data was not surprising. If anything, the figures appear to be stronger than anticipated, and should be helpful to the currency and the Canadian markets.\u201d<\/p>\n\n\n\n

The S&P\/TSX composite index ended today down 377.22 points, or more than 2.7%, at 13,481.90. The Canadian dollar fell 0.38 of a U.S. cent to 75.63 cents US.<\/p>\n\n\n\n

\u201cThe fun part of this is going to be how each of the political leaders deals with it over the next week. Our clients are going to hear different stories about what this data meant. The political leaders will spin this in the way they would like it to be presented.\u201d<\/p>\n\n\n\n

Nash\u2019s message to clients will be straightforward: The recession was largely focused in the energy sector, with other areas of the economy performing well. Most importantly, June\u2019s solid data\u2014pushed along by consumer spending\u2014was better than expected.<\/p>\n\n\n\n

More than the GDP data, Nash\u2019s allocation decisions were influenced by last week\u2019s correction. Leading up to the dip, he had been peeling back his global equity exposure and taking gains, but holding steady on domestic exposure. He saw last Monday as a buying opportunity and added to his Canadian exposure.<\/p>\n\n\n\n

He did this through a broad market ETF, rather than individual stocks. \u201cSo, we\u2019re not putting ourselves in a position where the market rebounds, but the sector of the stock you selected disappoints. Once you regain comfort with the direction of the overall market,\u201d you can start targeting specific holdings, Nash says.<\/p>\n\n\n\n

For investors who do target sectors, Shenfeld says exports, including manufacturing exports, are benefiting from the lower Canadian dollar, as expected. Durocher adds that as the American economy continues to grow, it should fuel demand for Canadian goods. He says a strong U.S. showing could outweigh the Canadian effects of a slowdown in China. The U.S. is Canada\u2019s largest trading partner, importing 20 times as many Canadian goods as China.<\/p>\n\n\n\n

Still, the challenge for equities lies beyond Canada\u2019s borders, Shenfeld says. \u201cIt\u2019s not the time for Canadians to gaze at their own navels because it\u2019s really what\u2019s happening outside our country that has hit the first-half numbers, and will ultimately have a big say in how well we do in 2016.\u201d<\/p>\n\n\n\n

He recommends sticking to sectors that are insulated from global pressures, such as consumer staples and telecommunications companies. Durocher adds the service sector makes up 70% of Canada\u2019s GDP, and it\u2019s been doing well since the beginning of the year: Between January and June, it\u2019s grown 0.5%.<\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s a Recession \u2013 Now What? And what does that mean for client portfolios? The R-word. Two consecutive quarters of negative growth mean Canada is in recession. What does that mean for client portfolios? Real GDP contracted at an annual pace of 0.5% in the second quarter of the year, which followed a revised decline …<\/p>\n

Chris Currie Comments<\/span> Read More »<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-global-header-display":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-134","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/posts\/134","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/comments?post=134"}],"version-history":[{"count":1,"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/posts\/134\/revisions"}],"predecessor-version":[{"id":135,"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/posts\/134\/revisions\/135"}],"wp:attachment":[{"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/media?parent=134"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/categories?post=134"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.goodwoodfunds.com\/index.php\/wp-json\/wp\/v2\/tags?post=134"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}