Sean McRae

Monthly Market Update Financial Advisor

Sean.McRae@f55f.com
For the month of March 2018

Last Month in the Markets – March 1st – 29th, 2018

TSX S&P 500 DOW NASDAQ CAD/USD GOLD OIL
(USD) (USD)

Month - End 15,367.29 2,640.87 24,103.11 7,063.45 77.86 ¢ $1,327.30 $ 64.94

month +/- - 75.39 - 72.96 - 926.09 - 209.56 - 0.08 ¢ + $ 9.40 + $ 3.30
month +/- % - 0.49% - 2.69% – 3.70% - 2.88% - 0.10% + 0.71% + 5.35%

52 wk HIGH 16,421 2,873 26,617 7.637 82.90 ¢ $1,376 $ 66.55

52 wk LOW 14,786 2,329 20,380 5,805 72.50 ¢ $1,222 $ 44.34

YTD +/- % - 5.19% - 1.22% - 2.49% + 2.32% - 2.51% + 1.58% + 8.07%

1Yr +/- % - 1.16% + 11.77% + 16.65% + 19.48% + 3.69% + 6.08% + 28.34%
(source: Bloomberg https://www.bloomberg.com/markets)

What happened in March and the First Quarter?

Several market events occurred in March that haven’t recently transpired but many activities are
seeming very familiar. Volatility continues to be ‘new’ for 2018, and Donald Trump’s agenda has
similarities to policies that have been in place in the past, and until his Presidency, would not
have been imagined to return.
The Trump Administration in the U.S. has continued its agenda of unpredictable actions
(primarily on the personnel front) and a return to policies that appear to be a generation or two
old. The most searing new/old policies involve trade protectionism. Mr. Trump has embarked
on a program of tariffs for steel and aluminum, and against China. The equity markets reacted
predictably to his announced intensions by suffering dramatic losses.
It is counter-intuitive for most people, who believe that protecting domestic jobs by imposing
tariffs and duties on imports will be positive. Protecting domestic jobs with trade restrictions is
expensive and delivers long-term negative effects. The reason that firms purchase foreign
goods, services and inputs is that they are cheaper than domestically produced ones. By using
more expensive domestic inputs, firms see their profits squeezed, or they raise their prices, both
eventually leading to reduced production, further reduced profits; and eventually reduced
overall employment.
As an example; to bolster the simplified explanation (above), imagine the production/extraction
of flagstone for patios. It occurs naturally in Canada and it is quarried and transported to
landscape suppliers who sell to contractors and the public. The Canadian version of this product
sells for about $17/square foot whereas a similar product from India retails for less than half at
$8. If a tariff is imposed, equalizing the price of domestic and foreign flagstone, only those who
can afford $17 will buy, and all those who cannot will not. No new customers will be created and
 Sean McRae
Monthly Market Update Financial Advisor
Sean.McRae@f55f.com
For the month of March 2018

no additional demand will be created at $17.

It’s difficult to imagine a product with more transportation costs other than stone manufactured
across the Pacific Ocean, and within the interior of a large country. Once it is cut, stacked,
crated, shipped overland, placed on a ship, sailed across the Pacific, off-loaded, transported from
the far west of Canada to all points eastward, it is then available for sale. Raising the price of this
cheap, and some would likely say inferior product, does nothing to increase demand or
employment in the domestic stone and landscape business.
The equity markets, and the players within them understand the negative effects of trade
protectionism. The markets react immediately to the negative statements and the times when
the American President seemed to soften his stance later in the month.

(source: Bloomberg https://www.bloomberg.com/markets)

The emerging change for 2018 over 2017 is the increasing amount of volatility in the market.
‘Volatility’ is, essentially, whether changes in value for a security or index is likely to be large or
small. The higher the chances that the changes will be larger, the larger the volatility. The
security could be compared to itself, or to a benchmark like the TSX. If a stock is more volatile
than the index it will typically rise and fall more than the underlying index’s rises and falls.
So far in 2018, when indices like the Dow, S&P500, NASDAQ and the TSX are compared to
themselves, volatility has risen dramatically during the first quarter.
For the final nine months of 2017, the U.S. indices climbed steadily, with relatively few hiccups.
Toward the end of January 2018, the wild swings in daily closing values began for the Dow,
S&P500 and NASDAQ.
 Sean McRae
Monthly Market Update Financial Advisor
Sean.McRae@f55f.com
For the month of March 2018

Perhaps a single silver-lining in all of this for Canadians who invest domestically, the volatility of
the TSX compared to the three major US indices has been lower. Unfortunately, the positive
returns are lagging, and, thankfully, so are the negative returns.
As a further contributor to negative volatility, the U.S. Federal Reserve raised their benchmark
rate by ¼ point, which came as a mild surprise. Also; Canadian economic production numbers
significant underperformed causing negative effects at home.

What’s ahead for April and beyond?

All indications are that April will continue the trend toward increased volatility for equity markets
in North America that the last 10 weeks have delivered.
Tariffs and trade-treaty negotiations will supply much of the fuel for this volatility, along with
announcements and pronouncements from the White House.
Despite many months and several rounds of negotiations on NAFTA, indications from the U.S.
are that they would like a speedy conclusion before the Summit of the Americas meetings in
Peru in mid-April.
Expect positions, official and on Twitter, to affect markets in both directions as the Summit
approaches, as the Presidential Mexican elections approaches this summer and U.S. mid-term
elections occur this autumn. If two-thirds of the triumvirate (Mexico and the U.S.) want an end
to negotiations, it is possible that Canada could be forced to conclude talks prematurely or we
may finally have some leverage that hadn’t existed previously.
As these days of increased volatility are expected to continue, if you should have concerns, or
any questions arise, do not hesitate to reach out to me.