The Logic’s subscribers are concerned that North American stock markets are headed for a downturn.
Thirty-two per cent of those who responded to the May survey said they were somewhat concerned, while 23 per cent said they were very concerned about a downward stock spiral.
Many subscribers pointed to the cyclical nature of the economy as reason for why they expected a downturn. One wrote that stocks “have reached as high as they can.” Another responded, “It’s cyclical. It happens,” though they added, “Downturns don’t mean correction or recession.”
Methodology
The results are from The Logic’s May 2019 subscriber survey. A private link was sent to subscribers by email and the survey was conducted online. All respondents were kept anonymous and duplicates were removed as needed. Our subscribers were asked to provide responses to a series of questions. For this question, subscribers were asked to answer the following question: “How concerned are you that North American stock markets are headed for a downturn?” Their choices were: very concerned, somewhat concerned, neither concerned nor unconcerned, somewhat unconcerned and very unconcerned.
One subscriber was more bearish, writing, “I believe Canada can expect to see a recession by the fall of 2019.”
The results come despite a series of strong months for stock markets in North America, which have been running on a high since March 2009, the longest bull run ever. The New York Stock Exchange has gone up 11.07 per cent since December 2018, while the Nasdaq is up 15.64 per cent. But other economic indicators in the U.S. are trending poorly, with retail sales and industrial production declining.
Tech stocks, a large driver of the rising market, have been falling recently. Following reports that the U.S. government was set to begin antitrust investigation into several tech giants, the Nasdaq shed more than one per cent, entering correction territory. The government’s move followed growing privacy and antitrust scandals for Big Tech, an industry that’s largely gone unregulated.
Many large tech firms have gone public this year—in what’s been called the Year of the IPO—including Uber, Lyft and Pinterest. With valuations as high as US$82.4 billion, the IPOs drew criticism from some investors about overvaluations, since the companies are not profitable.
Those concerns were heavily focused on Uber and Lyft, in particular. The two ride-hailing firms have raised record numbers from investors—and have spent heavily on marketing and ride subsidies—without a clear path to profitability, provoking some analysts to question whether the tech market is in a bubble.
Canadian companies’ stocks have been underperforming in U.S. markets for the past decade. That’s partially because Canadian stocks are concentrated in the energy, materials and financial industries; though banks have remained steady, resource firms haven’t yet bounced back from the commodity crash in 2014. Soaring cannabis stocks have helped, but investors are being more cautious now that the post-legalization hype has died down; a 2018 report from PwC Canada predicted more bankruptcies in the industry.
Still, some subscribers weren’t fazed. About 14 per cent of respondents said they were somewhat unconcerned about a stock market downturn, while about 32 per cent said they were neither concerned nor unconcerned.
“Markets go up and down,” one wrote. Another responded, “5 of the 6 indicators are positive. It should go up in the middle single digits.”
There have been some signs that Canada is emerging from the economic slowdown. In April, Canada added a record 106,500 jobs—the biggest one-month gain in over three decades.
Earlier in June, the unemployment rate hit 5.4 per cent, its lowest level since 1976, and Canada reported its smallest merchandise trade deficit since October 2018.
One subscriber who was neither concerned nor unconcerned with a potential downturn questioned the merits of investing by trying to predict a market crash. They wrote, “Trying to predict which way the S&P is going isn’t an investment approach I recommend.”
Despite the strong numbers, several ongoing international issues are creating volatility in the stock market. The USMCA, the new trade deal between Canada, the U.S. and Mexico, is being held up by Democrats in Congress. The U.K. is electing a new prime minister; the frontrunning candidate, Boris Johnson, is a Brexit hardliner who’s said the U.K. faces “extinction” if it doesn’t leave the EU. And, the ongoing U.S.-China trade war has no clear end in sight, with the potential of it escalating to a global trade war if President Donald Trump decides to enact tariffs on the auto industry.
