Market Watch for March 10, 2017

Andrew Trimble - Global Portfolio Advisory Group

March 10, 2017

Big Picture

Case for rate increase strengthens

The economic calendar was light this week but there was still plenty to keep market watchers occupied. In the U.S., two solid reads on jobs – ADP private payrolls and unemployment claims – have bolstered the case for a Federal Reserve rate increase at next week’s meeting. In Europe, the ECB left its bond-buying program and key interest rates unchanged at the bank’s policy-setting meeting Thursday. Of note, bank president Mario Draghi said additional measures to support the euro-zone’s recovery are becoming less likely as deflation risks subside.

Turning to China, the People’s National Congress trimmed its growth forecast for 2017 setting a 6.5% target “or higher, if possible” at last weekend’s meeting. Even with the reduction from last year’s 6.5% to 7% range, the 2017 growth rate, if achieved, would still rank among the world’s strongest.  Elsewhere, Canada got further confirmation its economy is speeding up after posting its third straight monthly trade surplus in January. In related news, the Organization for Economic Co-operation and Development raised its growth estimate for the country Tuesday saying Canada will grow 2.4% in 2017 matching the estimate for the U.S. Also in Canada, the government announced it will release its 2017 budget March 22. The U.K. introduced its 2017 budget with the government saying it expects the economy to grow faster this year despite Brexit headwinds. The U.K.’s divorce plan to exit the EU hit a second bump this week as the House of Lords voted to give lawmakers greater say over the country’s withdrawal. Looking ahead, the U.S. releases its closely watched jobs report today (Friday) which is the last influential piece of data the Fed has to consider before its meeting.

Markets

North American stocks fall

North American stock benchmarks pared gains following last week’s surge.  For the four-day period covered in this report, the Dow fell 147 pts. to close at 20,858, the S&P 500 shed 19 pts. to end at 2,364 and the Nasdaq gave back 32 pts. to finish at 5,838. The TSX ended the period lower by 112 pts. to settle at 15,496.

Equities/Strategy

Medium-term outlook remains bullish

Equities: Various calls by market participants for an imminent market correction/crash have largely been ignored by equity markets.  Such behaviour, following strong market gains, is indicative of a robust bull-market and we believe this market will continue to climb the “wall of worry” well into 2018.  Our bullish outlook started in Q1 of 2016 and was upheld through Brexit and the Trump victory.  For the first time in almost a year, we are taking down our bullishness just a notch and only in the near term by postulating a possible 5% correction in the coming weeks.  That being said however, we still see strong double-digit returns for global equities this year and would prefer investors already invested to remain constructive and look through any upcoming weakness.  Our cautiousness is more targeted for cash sitting on the sidelines that is looking for a new entry point that could elect to be more selective in its near-term entry.

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