Market Watch for November 17, 2017

Global Portfolio Advisory Group

November 17, 2017

Big Picture

Global growth remains on track

The health of the global economy was centre stage this week with key data pointing to continued growth – albeit modest – in the world’s largest economies. Starting in the U.S., manufacturing output registered a one-month 1.3% increase in October, notably higher than the combined manufacturing output change in each of the five prior months. The gauge measures the production output of manufacturers, mines and utilities which are important drivers of economic growth. Turning to China, its manufacturing output fell to 6.2% yoy in October down from 6.6% in September. Although moderating, the gauge points to still solid growth for the world’s second-largest economy. In Japan, GDP data Wednesday showed the country growing at an annualized pace of 1.4% in Q3. The country has now gone nearly two years without a contraction in GDP, the longest since 2001. Turning to the Eurozone, the flash Q3 GDP estimate left quarterly growth unrevised at 0.6% and yoy estimates unchanged at 2.5% which are the fastest rates of growth recorded in the region in almost a decade. Returning to the U.S., inflation remains muted with consumer prices rising only slightly in October from September. Yoy prices have advanced a more robust 2% with the two data points sending mixed signals to the U.S. Federal Reserve which must decide whether the economy can withstand a planned, third interest rate hike mid-December. In political news, the Trump tax plan cleared an important hurdle Thursday with the House passing it but the tax overhaul must now go to the Senate. Also of note, NAFTA talks restarted Thursday in Mexico City with top negotiators from each country staying home to allow working-level officials to sort through the most difficult issues, a move that doesn’t bode well for their self-imposed March 2018 deadline.

 

Markets

U.S. socks stage strong rebound

U.S. stocks pulled back to start the week but strongly rebounded Thursday recovering all of the losses south of the border. For the four days covered in this report, the Dow added 36 pts. to close at 23,458, the S&P 500 moved ahead 3 pts. to end at 2,585 and the Nasdaq gained 42 pts. to finish at 6,792. The TSX was the money loser among the four benchmarks giving back 104 pts. to settle at 15,935.

 

Equities/Strategy

Markets continue to impress following U.S. election

Strategy: Global markets grinded higher over the past month notwithstanding a bout of profit-taking in recent days. Economic reports around the world continue to point to solid growth momentum with 2017 on pace to post among the best global GDP growth rates since 2011. Economic momentum has broadened out to the four corners of the world over the past year with every major economy posting positive growth, reflecting a sturdier global recovery phase. This has translated into solid double-digit corporate earnings growth in the third quarter once the insurance sector has been excluded following its large, hurricane-related losses. Having avoided a correction in excess of 5% since February 2016, the S&P500 equity index has experienced an unusually long stretch without a meaningful pullback, leaving on the table some potential for transient profit-taking at some point.  Headline risks abound.  These include geopolitical noise out of the Middle East, with rising tensions between Saudi Arabia and Iran possibly putting oil supplies at risk.  Meanwhile, the U.S. Congress continues its work on a tax reform bill that can pass both chambers, and the Federal Reserve approaches its meeting in mid-December, when the Federal Open Market Committee is expected to hike interest rates once again. However, with underlying fundamentals remaining supportive, we continue to view pullbacks as an opportunity to put cash to work.

 

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