Having already slowed from 4% to 3%, world GDP growth is set to take another leg down as growth in advanced economies slows to its weakest pace since 2012.1

Under the cloud of protectionism, global trade flows, which have been decelerating due to tariffs, are now outright contracting on a year-on-year basis. As a result, most of the weakness in the world economy this year has been in industry, while the services sector has held up quite well.2 We are monitoring these developments and have concluded that our Stagnation outlook for the U.S. economy over our forecast time horizon of twelve months still stands, with a recession likely in the last quarter of 2020 or early 2021.

The outlook for some emerging markets has been improving, but as emerging economies have benefited from globalization, they are more likely to lose out from de-globalization. China’s economy has remained resilient in recent months, but GDP growth is set to be the weakest in decades. With the property construction boom near the end of its cycle, headwinds from higher food inflation, and cooling global demand, a slowdown will be unavoidable.

In Europe, the outlook for exports is poor because the euro-zone’s key trading partners are losing momentum. To offset the slowing growth in Europe’s economic heartlands and ongoing Brexit uncertainty, the European Central Bank has extended its deposit rate further into negative territory and announced another round of asset purchases.3 It is encouraging that the share of non-performing loans continues to drop in places like Spain and Italy, reflecting a more resilient banking sector.4

In the U.S., consumer spending increased at a nearly 4% annualized rate for the first nine months of 2019 with rate-sensitive durable goods purchases rising at a double-digit pace. U.S. customs receipts hit a record $7.2 billion in August, good news for the Treasury but bad news for domestic firms who are paying those tariffs.5 The average tariff rate on U.S goods imports has doubled over the last year and a half.

Canadian GDP was flat in July, ending a run of upside surprises that amounted to the best monthly growth streak in two years. Maintenance shutdowns in the oil and gas sector and a pullback in drilling activity weighed on growth in July.6

Despite slowing economic growth, ongoing trade tensions, and a presidential impeachment inquiry, U.S. equities recovered in September. Large-caps underperformed mid and small-caps, with the S&P 500 up 1.9%, while the S&P MidCap 400 and S&P SmallCap 600 gained 3.1% and 3.3%, respectively. For the first three quarters of 2019, the S&P 500 outperformed, gaining 20.6%, while the S&P MidCap 400 and S&P SmallCap 600 gained 17.9% and 13.5%, respectively. Canadian equities gained during the month, third quarter, and YTD, with the S&P/TSX Composite up 1.7%, 2.5%, and 19.1% for those respective periods. The S&P Europe 350 shrugged off the gloom to finish the month, quarter, and YTD with gains of 3.8%, 2.6%, and 20.0%, respectively. A declining pound helped support the S&P United Kingdom which gained 0.8% for the quarter and 3.0% in September. Fixed income markets posted negative results in September.

The U.S. dollar maintained its positive momentum through September even after the Federal Reserve cut rates for a second time this year. In contrast, the euro slumped to its weakest level since 2017 as economic data in the Eurozone continued to deteriorate while U.S. economic results surprised to the upside. The loonie remained strong against the U.S. dollar in spite of the dollar strength and declining crude prices.

In October, we maintained the September allocation between Equities and Fixed Income across all models. Allocation to equities remains at 17% in Tactical Conservative, 22% in Tactical Moderate Growth, 36% in Tactical Growth, and 44% in Tactical Aggressive Growth. Within the Fixed Income allocation, we shifted a part of our 20+ year treasury exposure in each of our portfolio models to the 7-10 year in order to protect the portfolio from a rebound in long rates, as treasury yields have been declining and the yield curve is now inverted. Gold continues to be present in all models as it performs well in high risk, low yield environments as a risk-free asset class.

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


1 Capital Economics. Global Economic Outlook. Q4 2019.

2 Capital Economics. Global Economic Outlook. Q4 2019.

3 S&P Dow Jones Indices. Index Dashboard: Europe. September 30, 2019.

4 National Bank of Canada. Monthly Economic Monitor. Economics and Strategy. October 2019.

5 RBC Economics. Financial Markets Monthly. October 4, 2019.

6 RBC Economics. Financial Markets Monthly. October 4, 2019.


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