Market Update - July 2008

We hope you are enjoying the summer and taking a break to relax and spend time with family and friends. We are writing to provide you with a brief update on the financial markets, which have provided mixed results in the first six months of the year.

The year started with a double-digit drop in world stock markets in the third week of January, triggered by concerns about a recession in the U.S. and continued fallout from the crisis in the credit markets. The credit crisis, which began last year, was sparked by increasing defaults in the U.S. sub-prime mortgages and the collapse in value of securities linked to those mortgages. This March, the crisis took down Bear Stearns, a major American investment bank that was forced to sell itself to rival JPMorgan.

In April and May, financial markets stabilized following interest rate cuts and other emergency moves by the U.S. Federal Reserve. However, starting in June, the capital markets were roiled again - this time by the unrelenting rise in prices for food, oil and other commodities. Market participants began to realize that rising prices would have a significant impact on the global economy, hurt corporate profits and lead to higher interest rates, as central banks turned to fighting inflation.

The increase in food and commodity prices also created two distinct categories of stocks - those benefiting from higher prices and those facing pressure. Stocks in energy and materials (which includes industries such as metals, mining, fertilizer, chemicals, and construction materials) performed very well. However, the combination of falling consumer demand and higher commodity prices has been a major hurdle for consumer-related companies, while financials continue to suffer the effects of the credit crisis.

The Canadian market, which is home to a number of energy and other commodity stocks, has fared relatively well compared to the rest of the world. In the U.S., the U.K. and other world markets, the threat of rising inflation, falling home prices and lack of consumer confidence have pushed stocks down to multi-year lows. 

For many investors, staying true to a long-term financial plan in the midst of such volatility can be challenging. However, a well-diversified portfolio geared toward your financial goals and risk tolerance is still the best defence against market volatility. Historically, stock market downturns have been followed by even greater recoveries, and those who stayed invested have been rewarded.

If you have any questions about the markets or your investment portfolio, please don’t hesitate to contact either one of us at (604) 535-4724 for Morgan or (604) 535-4733 for Jolene.

Sincerely,

 

Morgan Butler                           Jolene Laing, CIM, FCSI 

Wealth Advisor                             Wealth Advisor