COMMENTARY — Better markets anticipated

Looking at stock market performance during the past two years, the trend, in technical terms, could best be described as a sideways correction: the TSE 300 index ran up strongly in late 1990 from the 3,000 level to 3,600 in early 1991 and has traded in a narrow range since that time.

The conventional wisdom in early 1991 was that we were ending a mild “growth” recession and that prospects were bright for the economy and the stock market. Instead, we have endured what, in many respects, has turned out to be the nastiest recession since the 1930s.

As much as 1991 and 1992 were years to try the most patient of investors, 1993 will be the year that promises to bring a sense of normalcy to financial markets. Economic growth at plus 3% or better, while not up to the standards of the early stages of past economic recoveries, will still be ample to provide encouragement to consumers, businessmen and investors. Provided that we don’t shoot ourselves in the foot through the political process, the basic building blocks have been put in place to continue a healthy rate of growth beyond 1993. Interest rate volatility will be modest, with short-term rates declining modestly in the early part of the year and gaining somewhat later in the year. Longer-term rates are expected to hold at or around current levels through the year, producing total returns of no more and no less than the coupon rates . . .

Looking around the world, there are reasons for optimism beyond what is happening in Canada. In the U.S., the recovery has taken firmer hold than it has here and expectations are for 1993 to experience steady growth at a rate comparable to Canada. At the same time, inflation will be held in check and should be comparable to the 3% experienced in 1992. Monetary policy is expected to be stable, with the distinct possibility that the Federal Reserve may not make any further policy moves over the course of the year. Beyond North America the outlook is not as hopeful, which may in itself be a reason for overseas investors to look at Canada. The European economies will experience relative weakness during the entire year, and Japan will not strengthen until the second half of 1993. This weakness will produce further easing by the central banks.

— From a Market Overview by James Muir, vice-president and director of research for Richardson Greenshields of Canada.