Market Watch for Friday October 6, 2017

Global portfolio Advisory Group

October 6, 2017

Big Picture

Global economic outlook strengthens

There was good news on the economic front this week for the world’s largest economies which reported solid factory activity. In the U.S., factory output reached a 13-year high in September as the ISM gauge of manufacturing reached 60.8 last month from 58.8 in August, the highest since May 2004. The reading exceeded expectations and suggests the factory sector is weathering the impact of hurricanes Harvey, Irma and Maria. There was similarly good news out of China as manufacturing activity grew at the fastest pace since 2012 as production, total new orders and output prices all improved. The official Chinese PMI index released last Saturday rose to 52.4 in September from 51.7 in August which marked the 14th straight month of expansion for the country’s manufacturing sector. Turning to Japan, its manufacturing PMI survey increased to 52.9 in September from 52.2 in August which also points to increased expansion. Taken together, the data coming from the world’s workshops point to smooth sailing for the global economy which has helped spur stock markets in the U.S., Japan and Europe to fresh highs. In the euro zone, one area of weakness emerged as retail sales fell for the second month in a row in August. That may give the ECB pause as it considers a reduction in stimulus efforts which was evidenced in minutes published Thursday. The minutes showed officials are ready to scale back the bank’s massive bond purchases but it remains unclear exactly how and when they’ll act. In Canada, monthly GDP data released last Friday showed the economy stalled in July following eight straight months of expansion bringing an end to an exceptional run that helped spur the central bank to raise interest rates twice in recent months. Looking ahead, it’s jobs day in both the U.S. and Canada as both countries report on their employment situations.

 

Markets

North American stocks march higher

Stocks marched higher through Thursday this week pushing major U.S. benchmarks into record territory again with traders remaining bullish about the strength of the U.S. and global economies. For the four days covered in this report, the Dow rose 370 pts. to close at 22,775, the S&P 500 added 33 pts. to close at 2,552 and the Nasdaq moved ahead 90 pts. to finish at 6,585. In Canada, the TSX gained 142 pts. to end at 15,776.

 

Equities/Strategy

Markets continue to impress following U.S. election

Strategy: Global markets have remained in a buoyant mood in recent weeks thanks to a steady stream of positive economic data and supportive monetary/fiscal policy developments. We have always maintained an optimistic outlook with respect to the ability of this current business cycle to continue generating healthy, albeit historically modest, growth. Recent data, however, has been beating expectations consistently with global growth climbing to 6-year highs and (even more impressively) broadening out to all major regions and economies. Falling unemployment rates, expanding business spending on capital expenditures and new highs in manufacturing activity are helping to provide an added boost to this current expansion phase which is in its 9th year. Central banks are also doing their part as they gradually turn toward unwinding a portion of the ultra-accommodative monetary policy settings still in place since the financial crisis. While raising interest rates occasionally causes a short-term spike in market volatility, the improved balance in economic and market drivers helps to improve the durability of the cycle. We remain of the view investors should overweight equities relative to bonds given recession probabilities over the coming 12 months remain quite low, and we continue to prefer cyclical sectors over interest-rate sensitive defensives in this late stage of the cycle as rates/yields trend higher and economic growth remains healthy.

 

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.

 


Market Watch for Friday September 29, 2017

Global Portfolio Advisory Group

September 29, 2017

Big Picture

Trump tax plan released  

It was a busy week with the U.S. central bank sharing the spotlight with NAFTA talks, a snap election call in Japan and President Trump’s long-awaited tax plan. The tax plan, released Wednesday, includes wide-ranging cuts for businesses and individuals. The new plan also proposes to bring down the current seven tax brackets to four with the top individual rate around 35% versus today’s rate of 39.6%. The tax blueprint also proposes to lower the corporate rate to 20% from its existing level of 35% today. Turning to NAFTA talks, the last round of discussions ended Wednesday in Ottawa on a negative note as U.S. negotiators tabled tough demands. The tough U.S. stance sets up a showdown in the next session in Washington October 11-15. In central bank news, Fed Chairwoman Janet Yellen said Tuesday modest levels of inflation in the world’s largest economy would not restrain the bank from raising interest rates. Looking back to last Sunday’s German election, it produced the expected win for Angela Merkel who can look forward to a fourth term as the country’s Chancellor. The victory was not as large as hoped leaving Merkel with the task of forming a collation government which could take weeks. Also on the election front, Japanese Prime Minister Abe called a snap general election for October 22. The decision reflects the current government’s optimism about the economy and its growth prospects. In Canada, consumer price inflation rose 1.4% yoy in August, up from 1.2% in July and the highest rate in four months. Retail sales rose a better-than-expected 0.4% in July from June. Market watchers get more to digest from Canada today as monthly GDP data is released.

 

Markets

Stocks notch quarterly gains

Most major North American stock benchmarks were poised for quarterly gains with one trading day left in the period. Year-to-date, the Dow is up 13.25%, the S&P 500 12.11% and the Nasdaq 19.9%. The third quarter has lifted the TSX into positive territory for the year as it’s up 2.16% ytd. For the four days covered in this report, the Dow rose 32 pts. to close at 22,381, the S&P 500 moved ahead 8 pts. to close at 2,510 and the Nasdaq added 27 pts. to finish at 6,453. The TSX closed out Thursday’s session 64 pts. higher to end at 15,618.

 

Equities/Strategy

Markets continue to impress following U.S. election

Equities: Strong earnings, potential U.S. tax cuts, low but rising yields, and a possible rotation into value stocks creates a supportive fundamental backdrop for global equities, in our view.  Despite the possibility of a small near-term pullback, we believe equities are still under-owned and offer relatively better value than fixed income. On the back of rising inflation expectations and narrowing global yield differentials, we continue to prefer banks, insurers, broker/dealers, energy, chemicals, industrial metals, paper, semiconductors, communications equipment, internet security, select retail, autos, industrials, and biotech. Geographically, we are overweight Europe (steepening yield curve) and Canada (improving commodity pricing) and underweight the U.S.

 

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.