Market Watch for February 16, 2018

Global Portfolio Advisory Group

February 16, 2018

Big Picture

Stability returns

There was a welcome return to stability on global equity markets through Thursday as concerns about inflation, interest rates and bond yields dissipated. The one data point of worry this week – U.S. consumer prices – came and went without incident Wednesday despite the inflation gauge rising a more than expected 0.5% in January, up 2.1% from a year earlier. A second measure of inflation – the prices businesses charge for goods and services – also rose in January from a month earlier as the U.S. Producer Price Index advanced a seasonally adjusted 0.4%. From a year earlier, producer prices advanced 2.7%. Both indicators point to firming inflation south of the border which may force the U.S. Federal Reserve to quicken the pace or number of interest rate increases it has previously communicated. The Fed next meets March 20-21 and has pencilled in three quarter-percentage-point rate rises for 2018. Still on the inflation front, U.K. consumer prices held at 3% yoy in January from December with Bank of England policy makers telegraphing intensions for successive rate rises with the first potential move coming in May. Turning to Japan, the world’s third largest economy extended its longest streak of economic growth since the late 1980s after reporting annualized Q4 GDP growth of 0.5% from the previous quarter. Yoy GDP advanced 1.6% in 2017 – the fastest pace in seven years – which will reassure BoJ officials that the economy is generating stable, albeit moderate, growth. In Canada, the Liberal government announced it will table the federal budget February 27 and last Friday’s jobs report for January showed a net job loss of 88,000 positions, the steepest decline in nine years. Looking ahead, we’ll get a look at the U.K. employment situation next week as well as GDP data.

 

Markets

Stocks rebound

Most major North American stock benchmarks rebounded this week recovering much of the ground lost after two bruising weeks. For the four days covered in this report, the Dow added 1,010 pts. to close at 25,200, the S&P 500 gained 112 pts. to close at 2,731 and the Nasdaq moved ahead 382 pts. to settle at 7,256. In Canada, the TSX ended the period 317 pts. higher to close Thursday’s session at 15,391.

 

Equities/Strategy

Market correction not reflective of strong fundamentals

Equities: The combination of a market pullback and analysts upwardly revising their earnings estimates to reflect U.S. tax reform has caused the S&P500 blended 12-month forward price-to-earnings ratio to drop 7% from its recent peak. We believe this is a meaningful pullback, as the recent selling, in our opinion, has been disconnected from economic fundamentals (strong earnings growth, healthy labour dynamics). Thus, we retain our two-year-old equity overweight bias, with a geographical preference for Canada, Europe, Japan and emerging markets at the expense of the U.S. We believe commodity sectors (materials, energy), industrials and financials will comprise the top four performing sectors in 2018.

 

This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI). This publication is intended as a general source of information and should not be considered as personal investment or tax advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Opinions, estimates, and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accepts liability whatsoever for any loss arising from any use of this publication or its contents. This publication is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors, or employees may from time to time acquire, hold, or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. All insurance products are sold through Scotia Wealth Insurance Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. This publication and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI.

 


Market Watch for February 9 2018

Global Portfolio Advisory Group

February 9, 2018

Big Picture

Markets wobble

Major global equity markets remained unsettled through Thursday taking their cue from U.S. stocks which were the most volatile in years over the four days covered in this report. Traders remain concerned that rising inflation could force the U.S. Federal Reserve to tighten monetary policy at a pace more than expected potentially shortening the nearly nine-year bull market. A recent jump in bond yields to multi-year highs also added to the nervousness as stocks may look relatively less attractive to risk-free Treasurys. Nevertheless, the U.S. market has solid underpinnings in economic growth, rising corporate earnings and a global economy that’s expanding. With regard to U.S. corporate earnings, roughly 80% of S&P 500 companies that have reported results for Q4 2017 have posted sales that beat analyst’s expectations which puts them on track for the most positive surprises since at least 2008 according to FactSet.  In central bank news, the Bank of England left interest rates unchanged at 0.5% Thursday at its regularly scheduled policy-setting meeting. BoE Governor Mark Carney did, however, say interest rates may need to rise at a steeper pace and earlier than previously thought with the first move potentially set for May.  In Washington, lawmakers reached a two-year budget deal breaking log jams over spending and immigration that led to a partial government shutdown last month. Also in Washington, Jerome Powell was sworn in Monday as the 16th U.S. Federal Reserve Chairman succeeding Janet Yellen.  Looking ahead, market watchers will be able to digest Canadian labour situation data today.

 

Markets

Turbulent trade 

U.S. stock benchmarks went on a wild ride this week with major indexes now in, or approaching correction territory – a 10% decline from their January 26 all-time highs. For the four days covered in this report, the Dow fell 1,660 pts. to close at 23,860, the S&P 500 gave back 181 pts. to end at 2,581 and the Nasdaq shed 463 pts. to settle at 6,777. In Canada, the TSX was also caught in the ups and downs with the index falling 541 pts. through Thursday to finish at 15,065.

Markets wobble

Major global equity markets remained unsettled through Thursday taking their cue from U.S. stocks which were the most volatile in years over the four days covered in this report. Traders remain concerned that rising inflation could force the U.S. Federal Reserve to tighten monetary policy at a pace more than expected potentially shortening the nearly nine-year bull market. A recent jump in bond yields to multi-year highs also added to the nervousness as stocks may look relatively less attractive to risk-free Treasurys. Nevertheless, the U.S. market has solid underpinnings in economic growth, rising corporate earnings and a global economy that’s expanding. With regard to U.S. corporate earnings, roughly 80% of S&P 500 companies that have reported results for Q4 2017 have posted sales that beat analyst’s expectations which puts them on track for the most positive surprises since at least 2008 according to FactSet.  In central bank news, the Bank of England left interest rates unchanged at 0.5% Thursday at its regularly scheduled policy-setting meeting. BoE Governor Mark Carney did, however, say interest rates may need to rise at a steeper pace and earlier than previously thought with the first move potentially set for May.  In Washington, lawmakers reached a two-year budget deal breaking log jams over spending and immigration that led to a partial government shutdown last month. Also in Washington, Jerome Powell was sworn in Monday as the 16th U.S. Federal Reserve Chairman succeeding Janet Yellen.  Looking ahead, market watchers will be able to digest Canadian labour situation data today.

 

Markets

Turbulent trade 

U.S. stock benchmarks went on a wild ride this week with major indexes now in, or approaching correction territory – a 10% decline from their January 26 all-time highs. For the four days covered in this report, the Dow fell 1,660 pts. to close at 23,860, the S&P 500 gave back 181 pts. to end at 2,581 and the Nasdaq shed 463 pts. to settle at 6,777. In Canada, the TSX was also caught in the ups and downs with the index falling 541 pts. through Thursday to finish at 15,065.

 

Equities/Strategy

Market correction not reflective of strong fundamentals

Strategy: Following a strong start to the year, global equity markets have experienced a sharp bout of volatility in recent days that wiped out much of January’s gains. While investor concern is normal during episodes of extreme market movements, we believe this latest bout of selling was overdue given the last market decline of just 5% or more occurred more than 18 months ago and the recent run-up in markets left market positioning unbalanced and thus vulnerable to a short-term correction. However, the medium-term outlook for markets remains constructive, in our view, underpinned by solid economic fundamentals and still-supportive policy settings. In particular, global economic growth remains at multi-year highs with recent data releases pointing to further forecast upgrades for 2018 in coming months. As well, the global recovery has broadened out impressively to every major economy in the world, leaving the economic recovery cycle more resilient to possible shocks and increasing the possible longevity of the recovery. This most recent correction has also helped to sharply improve market valuations, in our view. With risks of a recession over the coming year remaining very low, we view this latest market correction as an attractive opportunity to put any cash allocations to work.

 

 

This material does not include or constitute an investment recommendation, and is not intended to take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and talk to your investment advisor.

This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI). This publication is intended as a general source of information and should not be considered as personal investment or tax advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Opinions, estimates, and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accepts liability whatsoever for any loss arising from any use of this publication or its contents. This publication is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors, or employees may from time to time acquire, hold, or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. All insurance products are sold through Scotia Wealth Insurance Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. This publication and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI.