Market Watch for December 1, 2017

Global Portfolio Advisory Group

December 1, 2017

Big Picture

Taxes, data and oil in focus

The Trump tax overhaul, strong U.S. economic data and an agreement to extend oil production curbs made it a busy, last week of November. Starting with the Trump tax bill, it appeared to be gaining the required support to get passed in the Senate Thursday with the core of the bill corporate and individual tax cuts. If passed, several more hurdles must be cleared for the bill to become law. In economic news, data showed the U.S. economy growing faster than originally thought in Q3 as annualized GDP was upwardly revised to a seasonally and inflation adjusted 3.3% from 3.0%. More good news for the U.S. economy came from the Conference Board Tuesday when its consumer confidence index rose to 129.5 in November from 126.2 in October, a 17-year high. Closely linked to consumer confidence is consumer spending and it grew 0.3% in October after rising 0.9% – the quickest pace in eight years – in September. Taken together, the U.S. data points to another solid quarter of growth for Q4. Also of interest to market watchers was the OPEC meeting in Vienna in which it and other oil producers led by Russia agreed Thursday to extend their deal to curb production through the end of 2018. There was also progress on Brexit this week after an outline deal was reached on the divorce bill with the European Union. Meantime, the Organization for Economic Cooperation and Development said global growth is on course to deliver its best year since 2010 largely due to the U.S. and eurozone economies which are growing more rapidly than expected. Overall, the OECD is forecasting a 3.6% rate of expansion for the global economy this year and 3.7% in 2018. Looking ahead, we’ll get a look at Canadian GDP data tomorrow for the month and Q3.



Bullish month for U.S. stocks

U.S. stocks ended the month higher with the Dow roaring past the 24,000 pt. level for the first time Thursday. For the four days covered in this report, the Dow advanced 715 pts. to close at 24,272, the S&P 500 added 45 pts. to end at 2,647 and the Nasdaq shed 16 pts. to settle at 6,873. In Canada, the TSX lost ground giving back 41 pts. to finish at 16,067.



Strong fundamentals push markets to new highs heading into year end

Strategy: The fundamental backdrop for global markets remains constructive as we head into the final month of the year. Global economic growth indicators, such as consumer and business confidence and machinery and equipment orders, have remained near 8-year highs across the manufacturing and service sectors in most major economies. This has translated into ongoing economic and earnings forecast upgrades over the past month suggesting the economic expansion could sustain this year’s solid pace into 2018. This should help the current growth cycle’s duration (now at approximately 8.5 years) approach the longest expansion cycle on record in the post-WWII era (10-years: 1991-2001).  As a result, a number of major equity markets in North America, Europe and Asia hit new all-time highs in the month of November. Notwithstanding occasional bouts of profit-taking, we remain bullish on equity markets heading into year-end and the new year. With economic growth set to sustain a healthy pace, commodities holding near recent highs, and interest rates set to gradually rise, we expect cyclical sectors to continue to outperform at the expense of interest-rate defensive segments (see asset allocation tables at the back for more detail). Near-term market drivers and/or event risks to watch for in coming weeks include OPEC’s meeting to discuss extending production cuts to year-end 2018 on Nov. 30th, a vote on the U.S. Senate’s version of a tax reform bill that could come as soon as Dec. 1st, the U.S. budget expiry on Dec. 8th, and the U.S. Federal Reserve’s interest rate-setting meeting on Dec. 13th (25bp rate hike expected).



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