The global economy entered 2019 facing headwinds that included the ongoing uncertainty around the U.S. war on trade, a series of idiosyncratic events in the Euro area and the U.S. government shutdown. In April, the IMF lowered its growth forecast for 2019 to 3.3% from the previous level of 3.5% in its latest World Economic Outlook. This is the third time in six months that the fund has revised its outlook downward and is now projecting a decline in growth this year for 70% of the global economy.1 We continue to position our portfolio models to reflect the view that the U.S. will experience GDP growth over the next twelve months that is below 2.5%, resulting in Stagnation.

The U.S.-China trade tensions re-escalated in May with trade negotiations breaking down and tariffs raised by both sides.  The new baseline of the U.S.’s 25% tariff on US$200 billion in imports from China and China’s 5%-25% tariff on US$60 billion of U.S. goods reverses 45 years of pro-trade U.S. leadership.2 Recent experience also indicates that the tariffs will have a broader impact on other trading partners. While first quarter Chinese GDP growth came in better-than-expected at 6.4%, supported by a jump in industrial production and retail sales, it is likely to come under pressure in the remainder of 2019.3

The European economy has entered its fifth year of recovery, which is now reaching all EU member states. European parliamentary elections in May look set to increase the representation of populist parties, but Eurozone reform is unlikely before the next major downturn. In Germany, the economy grew, expanding by 0.4% in the first quarter.4 The trade war between the U.S. and China, two of Germany’s three largest export markets, is creating greater uncertainty. Brexit continues to dominate the political and policy environment in the United Kingdom.

In the United States, real GDP grew by 3.2% annualized in Q1 2019 after downshifting to 2.2% in Q4 2018.5 Business spending on equipment came to a halt after surging the prior quarter, partly due to trade policy uncertainty and a fading lift from tax cuts. Exports rose, which, coupled with a large drop in imports (largely payback from earlier moves to get ahead of tariffs), provided a full 1% trade related lift to GDP. On May 1st, the Fed held the rate target and guidance steady at 2.25-2.50%.6 The policy statement noted household spending and business investment slowing in Q1, an easing in global financial conditions, and improving data in China and Europe. Canada saw a robust April Labor Force Survey and good news on consumption and manufacturing have followed with auto sales having rebounded in the first three months of the year.

In April, large cap stocks in the U.S., Europe, Japan, and across Emerging Market indices displayed moderately high dispersion and near-record low volatility and correlations. U.S. equities were positive in April. The S&P 500, S&P MidCap 400, and S&P SmallCap 600 gained 4.1%, 4.0%, and 3.9%, respectively. Canadian equities posted gains, with the S&P/TSX Composite up 3.2%. The S&P Europe 350 gained 3.8% on the month with first-quarter earnings coming in better-than-feared for Europe’s blue-chips, and with further promises of stimulus from the European Central Bank. Another Brexit delay was welcomed by the U.K.’s equity markets as the S&P United Kingdom gained 2.1% in April. Chinese equities continued their recent winning streak as the S&P China 500 gained 1.9% in April to make it a 23.3% gain for the year to the end of April. Oil was stronger, aided by U.S. plans to tighten sanctions on Iran and political turmoil in Venezuela.

In May, we maintained the existing allocation between equities and bonds across all models. Allocation to equities remains at 30% in Tactical Conservative, 40% in Tactical Moderate Growth, 50% in Tactical Growth, and 60% in Tactical Aggressive Growth.  Within fixed income, we added exposure to long-term treasury bonds while we reduced positions in municipal bonds and 7-10-year treasury bonds. This asset allocation continues to reflect our expectation that the U.S. economy is under pressure but is more stable than other global equity markets. Longer treasuries will continue to benefit from the downward pressure on interest rates and the relative attractiveness of interest rates in the U.S. versus the rest of the world.

We will continue to monitor the data for growth, inflation, and recession signals from employment, consumer spending, business sentiment, Fed policy, the yield curve, inflation, and global economics. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1International Monetary Fund. World Economic Outlook. April 2019.

2J.P. Morgan. Global Data Watch. May 17, 2019.

3Trading Economics. China GDP Annual Growth Rate. April 17, 2019.

4Trading Economics. Germany GDP Annual Growth Rate. May 15, 2019.

5Trading Economics. United States GDP Growth Rate. April 26, 2019.

6Trading Economics. Fed Funds Rate Growth Rate. May 1, 2019.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. April 30, 2019. Index performance is based on total returns and expressed in the local currency of the index.