Market Weakness Creates Opportunities

October 28, 2014

We didn’t stop the correction from coming. It came. Somehow or other, it came just the same.

Last quarter, we discussed how 2014 was the first year since 2009 that the market did not correct in the second quarter; however, we are now seeing a significant pullback for the first time this year. After a solid end to the summer, the first few days of fall were not kind to equity investors. The S&P/TSX Composite Index corrected 4.4% in September and really picked up steam once the calendar eased into fall. Despite recent weakness, the S&P/TSX Composite Total Return Index posted only a slightly negative -0.6% return for the three month period ended September 30th, 2014 while the S&P 500 Total Return Index fared better, up 1.1% for the same period.

Fundamentals Remain Strong, Despite Market Weakness

The recent equity market weakness does not concern us. In fact, a pullback is always healthy and volatility creates opportunity. Fundamentals for North American economies and equity markets remain as strong as they have been since before last decade’s recession. Commodity prices have been particularly weak of late on the back of US dollar strength. We believe this creates an opportunity to accumulate resource-oriented companies at attractive prices. Prevailing wisdom in the post 2008 world dictates that when the US dollar is strong, commodities should be weak. US dollar strength is seen as a flight to quality, out of riskier asset classes such as commodities. This is also known as the “risk off” trade.

Read full Q3 Quarterly Review