Staying the Course: Why Markets Endure Even in Uncertain Times
Welcome to Summer 2025
If you look at the performance of the stock market over the past three months, you might think that everything is going quite well in our world. The reality is anything but. Consider:
Iran and Israel traded missile attacks against each other in the Middle East starting June 13.
The United States carried out strikes against Iran on June 22.
The war in Ukraine is more active than ever with both Ukraine and Russia making multiple missile strikes on each other this past month.
The humanitarian crisis in Gaza has deepened as Isreal presses its bid for control of the area.
The United States continues to wage a trade war against its major trading partners including China, Mexico and Canada.
China continues to prepare itself to take Taiwan by force. This would be a huge blow against the West and would likely embolden other nations such as North Korea to follow suit against American allies.
There is a seeming disconnect between the performance of your investments and what is going on in the world. A new meme[1] “Nothing Ever Happens” describes the cynicism that many investors feel as seemingly catastrophic events lead to little or no market movement. This phenomenon is not new.
[1] I live with four teenagers and so feel compelled to do my best to work with their language. “Meme” is a theme that is shared widely. It could be a picture, video or (in this instance) a piece of text.
Making Sense of a Stock Market that Seems to Ignore Headlines
In 1988, just as I was completing my undergraduate degree, three academics: David Cutler, James Poturba and Lawrence Summers (who served as the US Secretary of the Treasury from 1999 – 2001) published a paper entitled “What Moves Stock Prices?”. In this paper they looked at major events such as the bombing of Pearl Harbour in 1941, the Cuban Missile Crisis in 1962 and the Chernobyl Nuclear meltdown in 1986. What they found is that stock market responses were surprisingly muted as important world news was reported. (Source: Cutler, David M. and Poterba, James M. and Poterba, James M. and Summers, Lawrence H., What Moves Stock Prices? (March 1988)).
Thirty seven years after this paper was published, the results are the same: investors react to news that they believe will meaningfully impact the value of their investments. News of war generally leads to all-or-nothing outcomes which is difficult to price. Economic news such as interest rates and/or the imposition of tariffs can be more easily factored into the price of a stock.
The lesson in all of this is to remember that a headline that catches your attention may not result in a change in the value of the shares you own. This was true over eighty years ago and still true today.
How to Avoid Being Scammed
The Canadian Investment Regulatory Organization (CIRO) which regulates investment activities in Canada, issued a warning to Canadian Investors (and seniors in particular) to be careful because scammers are becoming increasingly sophisticated and pervasive. Among the tips offered, they highlight naming a trusted contact person to your investor profile. This person, who can be a family member or friend, can look out for you and assist us in giving you the best-possible advice and especially keep a lookout for scams on your behalf. In a world of ubiquitous technology and artificial intelligence, relationships matter more than ever. We encourage you to nurture trusted relationships and use them for your protection. Please reach out if you would like to add this feature to your profile.
Financial Literacy for the Next Generation
On May 31, we were pleased to host a group of young people here at our office for a seminar designed to build financial literacy and specifically explain how the First Time Homebuyers Plan works. We had several of you ask for a recording of this session which you can access here.
Prices, Currency and Interest Rates
The bank of Canada reported that Canada’s inflation rate is holding steady at 1.7%. They also held the overnight rate steady at 2.75%. This leaves borrowing costs well below the 5.00 level they were at just over one year ago and price stability that is well within the bank’s target range. I believe these conditions are positive for everyone: governments, businesses, investors and consumers. (Source: Bank of Canada)
