Rick Stuchberry, vice president and portfolio manager, Richardson GMP

FOCUS: Canadian Large Caps and International ADR's

Market outlook:

Uncertainty is building in markets as we move slowly forward to the first interest rate hike since 2006. One could argue that the only reason the world and markets recovered after the market crash of 2008 was because the Federal Reserve acted decisively by cutting interest rates to 0.25 percent and chose to flood the world with cash. This “printing” of money flooded markets, recapitalized the banks, and restored confidence to a shattered U.S. consumer.

We are now invested in a growing economy, with great demographics, and a critical breakthrough in energy production resulting in the strongest corporate balance sheets in history. Apple’s cash hoard will surpass the GDP of Greece over Q2 of this year, meaning Apple will have more cash than the entire productivity of a nation of 10 million people. From a fundamental point of view, things are very good and improving.

Despite the strong fundamental backdrop, we believe this bull market is getting tired. Having not had a reasonable pull back in 6 years, we are starting to prepare our defenses for potential weakness.

The last time the markets went up for this long without a pullback was before the crash of 1987. The reason will seem obvious when we look back, but now we see growing uncertainty in the markets as a clue to raise a bit more cash. In our opinion, we think the lead up to the rise in interest rates will provide a pullback we may use as a buying opportunity.

The reason being, we have had no returns in bonds for 6 years, meaning there is no “risk-free” return to build market models on, in the event we have an increase in interest rates, the stock market will have to find a new multiple to trade with and during that exploration, and we will likely see buying opportunities.

Fundamentally it is the same logic as real estate, when mortgage rates increase, real estate prices have to adjust, but ultimately the fundamentals of the property are the core of the value.

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