Market Watch for June 23, 2017

Global Portfolio Advisory Group

June 23, 2017

Big Picture
Oil prices slide

Crude oil made headlines this week for all the wrong reasons as the price of the commodity fell into bear market territory. Prices for U.S. crude were down more than 20% mid-week since their recent peak in late February meeting the definition of a bear market (a bull market would be a rise of more than 20% from a recent trough). In May, a group consisting of OPEC members and other major producers extended a 2016 agreement to curtail supply in an effort to reduce global supplies and stabilize prices. Those attempts appear to be faltering due to other, new supplies coming to market which is weighing on the energy sector and renewing concerns it could spill into other commodities prices. Elsewhere, index-giant MSCI decided to include some shares traded on mainland China in its widely followed emerging-markets index. The move is expected to attract significant investment assets to China as the country is now a recognized global investment destination. Turning to economic news, Canadian retail sales solidly beat expectations in April rising a seasonally adjusted 0.8% versus an anticipated 0.3%. Yoy nominal retail sales in April – which do not account for inflation – rose 7%. The strong results come amid heightened expectations the Bank of Canada may increase interest rates – currently at a near-record low of 0.50% – sooner than anticipated. South of the border, U.S. sales of existing homes increased 1.1% in May and 2.7% yoy for the same month, a sign of continued, solid demand in the sector. Looking ahead, the BoC will have more to ponder in terms of a rate move after inflation data is released today.

Stocks inch higher

North American stock benchmarks inched higher for the four days covered in this report with the Dow rising 13 pts. to close at 21,397, the S&P 500 added 1 pt. to finish at 2,434 and the Nasdaq moved ahead 85 pts. to settle at 6,236. The TSX closed up 27 pts. to end Thursday’s session at 15,219.

Economic fundamentals remain constructive

Strategy: Overall, global economic fundamentals continue to evolve constructively with global growth firming in 2017 while also broadening out into all major regions. This has laid the groundwork for improving consumer and business spending, employment trends, and profit growth over the coming 12 to 18 months. Given the lack of inflationary pressures and tight monetary policies, we see recession risks over the coming year as low which should help extend the current market cycle through this year and likely much of next. Thus, we continue to advocate an overweight medium-term allocation to equities over bonds at this point in the cycle. However, in coming weeks volatility could begin to rise from low levels as we enter the summer season amidst typical seasonal pressures, recent market gyrations surrounding profit-taking in technology shares, uncertainty surrounding oil markets and a possible pipeline of headline risk out of Washington in coming months (Russia/FBI investigations, budget/debt-ceiling, tax reform, etc.). Therefore, we suggest a degree of caution in putting new money to work at the current time; instead we would view any mid-single digit percentage pullback in markets in the third-quarter as an attractive entry point.

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