OTTAWA -- As investors head into RRSP season this year, stocks in Canada and the United States sit at or near record levels, but tensions are rising and that could mean volatile times for the markets.
Before the U.S. presidential election, many had predicted that a Trump win would send stock markets crashing. But the reverse happened. Markets cheered the election of the real estate mogul and charged ahead in the weeks following the vote.
But the reality of the Trump administration has started to sink in and investors are becoming wary about what an angry tweet can do to their holdings.
Jurrien Timmer, director of global macro at Fidelity Investments, said Americans elected a "disrupter" and with that, the "game has changed."
"Since the 2009 bottom, post-the financial crisis, price has outperformed earnings in a very big way," he said.
"The question is, 'What are people going to be willing to pay for those earnings if we are faced with political and policy uncertainty?"'
Timmer said he expects the U.S. markets will do well because earnings are expected to grow, but the risk from uncharted political waters may mean that stock prices might not keep up with a rise in corporate profits.
"There will be this valuation headwind," he said.
Instead, Timmer is looking to European and emerging markets where he says they are earlier in their business cycle with room to grow.
"I am increasingly of the opinion that the opportunities in 2017 are going to be outside of the U.S.," he said.
Stock markets in the U.S. have been on a bull run since the end of the financial crisis, smashing through record highs in recent days.
The Toronto market has seen a similar wave of gains in recent weeks ahead of the March 1 RRSP contribution deadline. The S&P/TSX composite index, which is heavily weighed in commodities, struggled through 2015 as the price of oil took a beating, but roared back last year, rising 18 per cent before setting new intraday and closing highs last week.
Colum McKinley, a portfolio manager at CIBC Asset Management, said improved oil prices have helped underpin the energy sector where companies are beginning to talk about investing and growing again after rounds of cost-cutting.
"We're starting to see a bottoming process in Western Canada," he said.
McKinley said he also sees an upside for the Canadian banks, noting their strong record of paying and increasing their dividends.
"The Canadian banking industry is a unique one and we think that is one of the reasons why they have been great investments for Canadians in the past," he said. "That's likely to remain true in the future."
McKinley said it is important for investors to be able to stand back, understand their long-term investment goals and the best avenues to achieve them.
"We think that we are in a period of time that we're going to continue to experience heightened volatility, but we want to use that volatility to our advantage," he said.
"So when there's bad news in the near term that shows up on the front page, we're going to use that as a buying opportunity to add to what we think are great companies."
Timmer said he's an advocate of dollar-cost averaging, regularly putting money into your investments, in good times and in bad.
"If you're a typical investor, meaning you're saving for retirement, then you should always be putting money into the system when the opportunity is created," he said.
"That's the whole point of dollar-cost-averaging is that you spread out your cost basis over the long term."
