Third Quarter 2016 Commentary

October 14, 2016

We have been in a seven year period of low interest rates, yet inflation remains low and wages are only moderately rising. Global monetary policymakers are jumping through hoops. The U.S. Fed is trying to convince the world that a rate hike is warranted and the Bank of Japan has become more imaginative with its policies.

Politics have entered the spotlight once again as individuals fret over the effects of a Clinton or Trump U.S. presidency on taxation, international relations and fiscal spending. British Prime Minister Theresa May`s hardline stance supporting a ‘Brexit’ continues to be a prevalent theme. Economists are debating the potential impacts of recent measures implemented by the Department of Finance to address Canadian housing imbalances.

Despite the uncertainty surrounding the markets, politics and the central banks, the MSCI World Index finished last quarter with a nearly 3.5% total return gain when expressed in Canadian dollars. The S&P/TSX Composite Index finished the three month period with a gain of about 4.5%.[1]

Some media pundits insist that stock valuations are high and markets are due for a correction. However, 2016 saw the first of the baby boomers turn 70 and an increased emphasis on yield. At the same time, a third of all global government bonds have moved into negative yields.

The S&P 500 currently delivers a 2.1% dividend yield vs. a 1.6% yield given by a 10-year U.S.[2] Treasury note, and company earnings have been good enough to keep stock valuations quite reasonable relative to other parts of the market. As a result, income-starved investors have turned away from bond markets to equities as a way to deliver income.

The bottom line is, although this has been a fairly lengthy and shallow recovery, business cycles don’t expire from old age. If the dividend/bond yield gap mean-reverts anytime soon it likely will not be a result of a return to higher interest rates. This leaves room for capital appreciation.

As always, should you have any questions about your investment portfolio, the markets or wealth management issues in general, my team and I are here to help. Please call my office at 416-246-0888 or email me at


Valerio Cattelan, BSc, MBA, CIM®
Portfolio Manager
Director, Private Client Group


[1] Market Statistics and returns sourced from Market Snapshot completed by Private Client Research, HollisWealth. This article was prepared solely by Valerio Cattelan who is a registered representative of HollisWealth® (a division of iA Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada).  The views and opinions, including any recommendations, expressed in this article are those of Valerio Cattelan only and not those of HollisWealth.

[2] David Rosenberg, Bonds Are the New Stocks and Stocks are the New Bonds. Financial Post.


Cattelan Private Wealth Counsel.