Market Watch for September 30, 2016

Portfolio Advisory Group

September 30, 2016

Big Picture

Data, events come into focus
With major central bank meetings out of the way traders refocused on a range of market moving data and events this week. One of the more watched unfolded in Germany where concerns grew over the stability and exposure of one of its banks. The European banking sector, as a whole, has had a tough time since the start of the year but what appears to be feeding some of the nervousness is financial fears from 2008. Also in the spotlight was a meeting among OPEC and other major oil producing nations in Algiers to try to reach an oil production agreement. The group found common ground Wednesday but it’s unclear whether the agreement can be turned into a deal as oil producing nations have yet to determine how much each may have to cut. Turning to economic news, the U.S. consumer confidence index rose in September to its highest level in nine years data showed Tuesday. The index increased to a seasonally adjusted 104.1 in September from 101.8 in August, a sign that American shoppers may continue to support the economy. House prices were another bright spot as they increased 5.1% in the 12 months ended in July, nearing their pre-crisis peak in 2006. On the central bank front, U.S. Fed Chairwoman Janet Yellen re-iterated her position before the House Financial Services Committee that the current course of the U.S. economy calls for a gradual rise in rates with no fixed time table. Finally, traders are beginning turn their attention to the presidential race after the first televised debate Monday. Many market participants believe a Clinton victory may support risk assets versus a Trump victory because her policies are clearer and more certain. Regardless who wins, the U.S. economy is much more dependent on what the Fed does than who is president.

Markets

U.S. stocks lower 
Major U.S. stock benchmarks ended lower for the four days covered in this report as the Dow fell 118 pts. to close at 18,143, the S&P 500 lost 13 pts. to settle at 2,151 and the Nasdaq gave back 36 pts. to end at 5,269. The TSX bucked the trend rising 57 pts. to finish at 14,754.

Equities

Stick with equities overweight in cyclicals
With both the Bank of Japan and the U.S Federal Reserve’s policy announcements now in the rear-view mirror, markets will shift their worry towards the outcome of the upcoming U.S. Presidential election. If there is one thing that the capital markets do not view favourably, it is uncertainty. Therefore, we expect the volatility we experienced over the last couple of weeks to continue into the November elections. Given valuations for Canadian and U.S. indices remain near 10-year highs on forward earnings (TSX – 16.9x, S&P500 16.9x), potential turbulence in the weeks ahead should be viewed as an opportunity to deploy excess capital into high-quality cyclical investments.

 

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