CIBC Asset Management Perspectives – TURNING UP THE PRESSURE
Market volatility returned with a vengeance over the last three months, with most asset classes providing low to negative returns.
Although the big picture hasn't really changed, the high financial market valuation of many asset classes left little room for negative surprises. Trade frictions and the threat of higher wage inflation have investors on edge.
- Fixed Income vs. Equity: While equity market volatility will likely continue, the current correction is taking place outside of an economic recession. This increases the likelihood that the equity market uptrend will resume, albeit at a more moderate pace than last year. Equities still look slightly more attractive than bonds for the moment.
- Equity: Emerging markets showed resilience during the recent high volatility—likely the result of stronger fundamentals; they should continue to offer the best prospects in the equity universe.
- Fixed Income: Global bond yields should continue to edge higher over the coming year after a recent pause, as the process towards renormalization remains a key force behind the price action.
- Currencies: Following a weak start in 2018, the Canadian dollar is expected to stay in a trading range. The loonie is caught between supportive oil prices and easing NAFTA risks on one hand and deteriorating trade and a prudent Bank of Canada, which will trail the pace of the U.S. Federal Reserve.
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Podcast with Luc de la Durantaye