Ottawa Investment Advisor John Bruce

Market Cycles: Client Update

November 6, 2009

To My Dear Clients,

Financial markets have made a dramatic reversal since March, when the outlook was highly uncertain and anxiety dominated the atmosphere. As frozen credit markets began to thaw in the spring, however, companies struggling with the rapid economic slowdown gained access to crucial funding to support their operations and shore up their balance sheets.

The lending recovery helped to fuel a turnaround in worldwide credit and equity markets that has continued through the summer months and early fall. In Canada, for example, the S&P/TSX Composite Index rose approximately 52% from its low for the year on March 6 to the close on September 30. The Canadian equity market has now recovered to where it was one year ago.

Though many investors remain wary, there are several good reasons to be cautiously optimistic about the recovery in financial markets and the broader economy as a whole. On the optimistic side:

  • Many governments and seasoned economists believe the global recession has come to an end. An OECD report released in early September indicates that economic recovery, though likely to remain weak, would arrive for most G7 nations earlier than anticipated by the end of 2009.
  • Underpinning the recovery is the drastically improved health of the global financial system. A number of large U.S. banks have passed stress tests, repaid government loans and improved their capital positions through successful debt and share offerings. Banks in other parts of the world are taking similar steps to reduce their vulnerability.
  • Riskier areas of the market, such as high-yield corporate debt and small capitalization stocks, have made strong gains in recent months.
  • Several large developing markets including China, India and Brazil continue to post robust economic growth that is helping to fuel the global economic engine.

From a more cautious perspective, these encouraging signs are beacons within a sea of mixed economic data. Unemployment remains persistently high in the U.S. and other countries, while other indicators show that growth is tepid. Governments and central bankers are remaining vigilant, keeping fiscal stimulus measures in place and interest rates at historically low levels. The U.S. dollar continues to weaken against other currencies, including the Canadian dollar, which rose 8% in the third quarter relative to the greenback.

After the summer’s stock market resurgence, a pullback would not be surprising, in our view. Bull market advances typically include periods of consolidation in which participants realize profits and search for new opportunities. As it is all but impossible to pinpoint when these movements will occur, our recommendation is to continue to follow your long-term investment plan.

My team and I continue to monitor your portfolio and current market conditions. Should you wish to discuss your investments with me, please do not hesitate to give me a call.


John S. Bruce
Investment Advisor
Mackie Research Capital
Direct Line- 613-425-3732
Toll Free- 866-860-4190

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