Market Watch for February 9 2018

Global Portfolio Advisory Group

Written by Alison Plaxin
February 9, 2018

Big Picture

Markets wobble

Major global equity markets remained unsettled through Thursday taking their cue from U.S. stocks which were the most volatile in years over the four days covered in this report. Traders remain concerned that rising inflation could force the U.S. Federal Reserve to tighten monetary policy at a pace more than expected potentially shortening the nearly nine-year bull market. A recent jump in bond yields to multi-year highs also added to the nervousness as stocks may look relatively less attractive to risk-free Treasurys. Nevertheless, the U.S. market has solid underpinnings in economic growth, rising corporate earnings and a global economy that’s expanding. With regard to U.S. corporate earnings, roughly 80% of S&P 500 companies that have reported results for Q4 2017 have posted sales that beat analyst’s expectations which puts them on track for the most positive surprises since at least 2008 according to FactSet.  In central bank news, the Bank of England left interest rates unchanged at 0.5% Thursday at its regularly scheduled policy-setting meeting. BoE Governor Mark Carney did, however, say interest rates may need to rise at a steeper pace and earlier than previously thought with the first move potentially set for May.  In Washington, lawmakers reached a two-year budget deal breaking log jams over spending and immigration that led to a partial government shutdown last month. Also in Washington, Jerome Powell was sworn in Monday as the 16th U.S. Federal Reserve Chairman succeeding Janet Yellen.  Looking ahead, market watchers will be able to digest Canadian labour situation data today.

 

Markets

Turbulent trade 

U.S. stock benchmarks went on a wild ride this week with major indexes now in, or approaching correction territory – a 10% decline from their January 26 all-time highs. For the four days covered in this report, the Dow fell 1,660 pts. to close at 23,860, the S&P 500 gave back 181 pts. to end at 2,581 and the Nasdaq shed 463 pts. to settle at 6,777. In Canada, the TSX was also caught in the ups and downs with the index falling 541 pts. through Thursday to finish at 15,065.

Markets wobble

Major global equity markets remained unsettled through Thursday taking their cue from U.S. stocks which were the most volatile in years over the four days covered in this report. Traders remain concerned that rising inflation could force the U.S. Federal Reserve to tighten monetary policy at a pace more than expected potentially shortening the nearly nine-year bull market. A recent jump in bond yields to multi-year highs also added to the nervousness as stocks may look relatively less attractive to risk-free Treasurys. Nevertheless, the U.S. market has solid underpinnings in economic growth, rising corporate earnings and a global economy that’s expanding. With regard to U.S. corporate earnings, roughly 80% of S&P 500 companies that have reported results for Q4 2017 have posted sales that beat analyst’s expectations which puts them on track for the most positive surprises since at least 2008 according to FactSet.  In central bank news, the Bank of England left interest rates unchanged at 0.5% Thursday at its regularly scheduled policy-setting meeting. BoE Governor Mark Carney did, however, say interest rates may need to rise at a steeper pace and earlier than previously thought with the first move potentially set for May.  In Washington, lawmakers reached a two-year budget deal breaking log jams over spending and immigration that led to a partial government shutdown last month. Also in Washington, Jerome Powell was sworn in Monday as the 16th U.S. Federal Reserve Chairman succeeding Janet Yellen.  Looking ahead, market watchers will be able to digest Canadian labour situation data today.

 

Markets

Turbulent trade 

U.S. stock benchmarks went on a wild ride this week with major indexes now in, or approaching correction territory – a 10% decline from their January 26 all-time highs. For the four days covered in this report, the Dow fell 1,660 pts. to close at 23,860, the S&P 500 gave back 181 pts. to end at 2,581 and the Nasdaq shed 463 pts. to settle at 6,777. In Canada, the TSX was also caught in the ups and downs with the index falling 541 pts. through Thursday to finish at 15,065.

 

Equities/Strategy

Market correction not reflective of strong fundamentals

Strategy: Following a strong start to the year, global equity markets have experienced a sharp bout of volatility in recent days that wiped out much of January’s gains. While investor concern is normal during episodes of extreme market movements, we believe this latest bout of selling was overdue given the last market decline of just 5% or more occurred more than 18 months ago and the recent run-up in markets left market positioning unbalanced and thus vulnerable to a short-term correction. However, the medium-term outlook for markets remains constructive, in our view, underpinned by solid economic fundamentals and still-supportive policy settings. In particular, global economic growth remains at multi-year highs with recent data releases pointing to further forecast upgrades for 2018 in coming months. As well, the global recovery has broadened out impressively to every major economy in the world, leaving the economic recovery cycle more resilient to possible shocks and increasing the possible longevity of the recovery. This most recent correction has also helped to sharply improve market valuations, in our view. With risks of a recession over the coming year remaining very low, we view this latest market correction as an attractive opportunity to put any cash allocations to work.

 

 

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