Trade wars, interest rate hikes and European elections all contributed to a general feeling of uneasiness in 2018, but prudent investors should have taken this uncertainty in stride. “Rolling mini-crises aren’t entirely a bad thing because they blow off steam,” says Steve Rogers, an investment strategist with IG Wealth Management. “And some of these events are only happening because the economy is doing well.”
With the year coming to a close, let’s look back at five events that impacted markets this year.
Whether it was renegotiating NAFTA, imposing tariffs on steel and aluminum, or a trade war with China, U.S. president Donald Trump stirred up a lot of anxiety among investors in 2018.
Rates keep rising
Central banks in Canada and the U.S. hiked rates three times in 2018 at the time of writing – with the Federal Reserve raising its target rate to 2.25 percent and the Bank of Canada increasing its rate to 1.75 per cent – which gave markets a jolt. Rising borrowing costs generally dampen investor enthusiasm as businesses tend to have to pay more to service debt, while consumers, some of whom are also dealing with rising debt payments, start spending less. “There were two big correction-territory pullbacks in February and October, and both really were driven by rate hikes,” says Rogers. On the flipside, rising rates are a sign of a strong economy, so markets mostly overcame any rate hike-related fears, he says.
Whether it was renegotiating NAFTA, imposing tariffs on steel and aluminum, or a trade war with China, U.S. president Donald Trump stirred up a lot of anxiety among investors in 2018, Rogers says. “The uncertainty around trade and what it will do to economic growth had an impact on investment portfolios for sure,” he says. With the new U.S.-Canada-Mexico Agreement in place, trade worries are starting to abate. It remains to be seen how China and the U.S. will fix their trade tensions, which is something investors should keep an eye on going forward.
Trade fears and rate hikes have driven the U.S. dollar higher and the Canadian dollar lower. Since January, the loonie has fallen by about 4.6 percent against the greenback. While that’s good news for some U.S. companies, a higher dollar dampens global growth, says Rogers. “The rising dollar has crushed commodity prices and stressed emerging market economies,” he says. A stronger dollar also hurt countries that own a lot of U.S.-denominated debt. Chief among them was Turkey, which saw its currency plummet – causing more jitters in the market – this year.
Canada stays flat
Despite Canada’s economy growing at about 1.1 percent in the first half of the year, our stock market is down more than 6 percent since January. This can be partly blamed on a weak energy sector, which saw construction on the Trans Mountain pipeline and the Keystone XL pipeline get stopped in court. Cannabis stocks, which were a bright spot for investors earlier in the year, have also fallen lately, dropping by about 30 percent since October 17, when cannabis became legal. Fortunately, most Canadians don’t own cannabis stocks, but their fall has contributed to the overall market decline, says Rogers.
More issues from Italy
Just when Europe’s troubles seemed to be behind it, Italy started making headlines again. While it is contending with some financial issues, like a high debt, the biggest worry is that its new populist government will decide to exit from the European Union. “There is a growing sense of unease about Italy’s standoff with the EU,” says Rogers. Fortunately, Europe as a whole is growing, with the European Commission expecting its gross domestic product to grow by 2.12 percent in 2019.
There was at least one bright spot to 2018 – America’s continued growth. “The U.S. economy, which is the world’s barometer, still did really well,” he says, though the S&P 500 is barely up on the year. While volatility will likely continue, 2019 should still be a decent year for stocks.