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.

 

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