May 20, 2009

Financial Planning Notes – May 2009

Filed under: Uncategorized — MikeT @ 12:00 am

In my January newsletter, I suggested that when the economy recovers that it will be led by equity markets. Although it is difficult to say where we exactly are in the economic downturn, it is my opinion that the worst is behind us.

We have seen the major Canadian stock market, the S&P/TSX, wipe out losses experienced in the beginning of the year and move strongly into positive territory, up to 9.6% year-to-date(1). A major stock index in the U.S., the S&P 500, has also made up ground from the beginning of the year with only a slight year-to-date loss of -1.1%(1). While as of April 30th, the MSCI World Index has shown a 3-month return of 7.6%(1). Equity markets have traditionally been leading indicators of where the economy is headed so these potentially are signs of a recovery on the way.

Further, an economic recovery can be anticipated with signs that the global credit market is stabilizing and improving. The LIBOR, which is the interest rate offered to the world’s most preferred borrowers (strongest banks), is now down almost 5% in May 2009 on the 3-month rate from its peak in October 2008(2). My belief is that this is significant progress as it strongly encourages banks around the world to lend more money to credit worthy companies that have been struggling since the credit freeze began (hope you’re still awake after that bit of news). More borrowing is not what consumers need but is vital for companies to survive and grow, supporting commerce and keeping people employed.

There will continue to be bad news as we move along in the recession but keep in mind that this is often fallout from earlier problems that started the recession. The ripple effect is normal and usually signals the stage we are at in the economic cycle.

Whether you pay attention to economic news and indicators or ignore them, remain focused on your financial goals and stick to your plan. Economic downturns tend to be brief while short-term equity market fluctuations provide great opportunities for our professional fund managers to grow our investment portfolios.

1 – Globeadvisor.com (May 14, 2009)
2 – Dow Jones Newswire (May 14, 2009)

 

 

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