As investors survey the economic landscape for the new year after the “jubilation” of 2017, Christopher Dewdney advises caution with the US tax cuts already priced into the market
The “jubilation” at robust growth in 2017 will not be repeated this year, warned a leading advisor.
Christopher Dewdney, principal at Dewdney&Co, said that with the US tax cuts passed and the new legislation already priced into the market, investors should not expect last year’s strong performance to be emulated.
He also believes changes to the US corporate tax structure puts Canada’s economy at a disadvantage to its neighbours.
“The Trump administration has passed major tax legislation that benefits corporations, so that poses well for the US market,” he said. “However, a lot of that has already been priced in.
“To our dismay, that’s going to reflect negatively on our market at the same time. Canadian equity is only a small part of global GDP. Our market is not as robust as the US and with the changes they have made to the corporate tax structure, it’s likely that we are going to see more growth coming south of the border than we are going to see here.”
Dewdney says the White House’s success in cutting tax will only embolden companies that were hardly feeling the pinch in the first place.
He said: “I don’t think you are going to see the robust growth [in 2018] that you saw last year but I do still think there is outside opportunity.
“One of the things we have to be cautious of is that the jubilation we saw in 2017 is not going to be the same in 2018 because those tax cuts have already passed - and it wasn’t like these companies were struggling to begin with. They are just going to become wealthier or more solvent. So I think one of the things you are going to see is a lot of share buyback and maybe dividend increases.”
As investors weigh up strategy for 2018 and more and more people appear to question when this bull market will end, Dewdney says the best idea is to play the long game.
“My top tip is to stick with the plan,” he said. “Stay invested and stick to the advice of your advisor and don’t stray from the course; stay focused.
“If you have a well-crafted and allocated and diversified portfolio, you shouldn’t be sidetracked by short-term gyrations and short-term trends. Stick with it for the long term.”
And the thing to be wary of? Leave the cryptocurrency speculation well alone.
He said: “This whole love affair with cryptocurrency can be potentially dangerous. The one thing you hear people speaking about, whether you are on Bay Street, Main Street or at the watercooler is Bitcoin and crypto and whatnot.
"I always go back to the old adage from Warren Buffet. He says, ‘be fearful when others are greedy and greedy when others are fearful’.
“The other thing is that the same person telling you about Bitcoin, ask them to explain it to you. They will tend to mumble, start slurring words and that would make me very cautious.”
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