Market Watch January 26th 2017

Global Portfolio Advisory Group

January 26, 2018

Big Picture

Trade, bankers and earnings in focus

It was a busy week filled with trade talk, monetary-policy news and U.S. corporate earnings announcements. Starting in Europe, the ECB left interest rates unchanged Thursday resisting any moves to cut back monetary stimulus due to lingering concerns over weak inflation and a surging euro. In Japan, the central bank also made no changes to its monetary policy Tuesday with bank officials saying they weren’t ready to join the current trend of tightening led by the U.S. Federal Reserve. After the meeting, BoJ Governor Kuroda said the bank was sticking to its goal of 2% inflation by 2020 so it was premature to discuss any exit from current stimulus efforts given the current pace of about 1%. Also in Japan, 10 countries and Canada reached an agreement on the Trans-Pacific Partnership trade deal with the official signing taking place March 8 in Chile. Market watchers may recall President Trump withdrawing the U.S. from the trade agreement about a year ago. Turning to corporate America, earnings through Thursday were largely positive helping major stock indexes extend gains in what has already been an impressive start to the year. In Washington, U.S. lawmakers reached a deal Monday to reopen the federal government after a brief shutdown stemming from differences over immigration policy. The deal keeps the government funded through February 8. Meantime, the Trump administration slapped tariffs on Chinese solar panels and South Korean washing machines saying they were needed to protect American manufacturers hurt by cheap imports. Turning to Canada, retail sales increased for the third consecutive month in November rising a lower-than-expected 0.2% after a revised October gain of 1.6%. Also in Canada, the sixth round of NAFTA talks got underway in Montreal Tuesday against a backdrop of increased skepticism the two-decades-plus trade agreement will be renewed. Looking ahead, the U.S. releases durable goods numbers today as well as GDP data for Q4 2017.

 

Markets

U.S stocks power ahead

Major U.S. benchmarks rose for the four days covered in this report with the Dow adding 321 pts. to close at 26,392, the S&P 500 gained 29 pts. to finish at 2,839 and the Nasdaq moved higher by 75 pts. to settle at 7,411. In Canada, the TSX fell 149 pts. to end at 16,204.

Equities/Strategy

Global markets continue to reach new highs on solid fundamentals

Strategy: Global markets are off to an impressive start to the year with the S&P500 index posting a 6.2% yearto-date gain while the S&P/TSX Composite index is up 1% in the same period (local currency terms). Meanwhile, WTI crude oil prices have climbed 6.7%, gold is 2.7% higher, and the Canadian dollar has appreciated 1% thus far in 2018. In large part, these gains are driven by strong and improving fundamental drivers including accelerating global economic growth, stable inflation, gently rising interest rates and bond yields, recovering commodity prices, a softer U.S. dollar, and healthy earnings growth. As a result, investor sentiment has jumped to a 7-year high, helping equity fund inflows surge in early 2018. Given we look for fundamentals to remain supportive through 2018, our investment strategy retains an overweight to equities and we would view any material pullback in markets as an attractive opportunity to put cash to work. The market has not experienced a pullback in excess of 5% for over 18 months. We would view any such correction as a function of short-term profit-taking and expect it would be temporary in nature given risks of a near-term recession remain very low.

 

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