Market Watch for August 18, 2017

Global Portfolio Advisory Group

August 18, 2017

Big Picture · Conflict concerns wane

The week got off to a positive start as concerns faded over a possible U.S.-North Korean conflict and Japan posted better-than-expected economic growth in Q2. For the three-month period ending June 30, the Japanese economy – the world’s third largest – registered a 4% pace of growth. The winning quarter was the sixth straight and the strongest since Q1 2015, a welcome sign for the country which has been trying to end decades of sluggish growth. Turning to Europe, factory activity took a step back in June, an indication the euro- zone economy may be cooling after an acceleration of growth in Q1 and Q2. In the U.S., consumers pulled out their wallets last month with retail sales rising a better-than-anticipated 0.6% in July, the biggest monthly gain since December. Also in the U.S., Federal Reserve minutes released Wednesday for the bank’s July meeting showed officials split over the timing of future interest rate increases. It’s unclear whether that means a third, penciled in hike for 2017 will happen. Bank officials did agree to begin the process of a portfolio wind down of assets held by the Fed which could take years to complete. In other central bank news, the ECB also released minutes of its July meeting Thursday which showed the bank hesitant about reducing its massive bond-buying program. Talks to reshape the North American Free Trade Agreement began this week with a dispute over how to settle trade disputes. Looking ahead, Canada releases retail sales data next week.

Markets · U.S stocks fall

North American stocks rebounded at the start of the week but gave up most of the gains and more Thursday. For the four days covered in this report, the Dow lost 108 pts. to close at 21,750, the S&P 500 fell 11 pts. to end at 2,430 and the Nasdaq shed 35 pts. to settle at 6,221. The TSX ended Thursday where it began the week at 15,033.

Equities/Strategy · Maintaining overweight equities recommendation

Strategy: We leave our overweight in equities and underweight in fixed income recommendation in place. We continue to believe assets and sectors sensitive to the economic cycle should outperform in this late-stage of the cycle, which in our view should be characterized by strong economic growth, rising interest rates / bond yields, and supportive commodity prices. Seasonal headwinds could offer attractive entry points for new money.

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