Data supports adding to equities

Big Picture

Investor anxieties rise sending stocks tumbling

There wasn’t much to cheer about – economically or politically – on the week and the markets registered their disapproval with North American indexes sharply falling.

Politically, the modest flexibility shown last week by Democratic and Republican leaders to work towards a compromise on the fiscal cliff receded this week. The White House drew a line in the sand saying the countries richest should be taxed at a higher rate. In contrast, Republican leaders opposed the idea of raising rates on America’s wealthiest. The hardening of positions and the prospect of gridlock spooked already edgy markets. Poor economic numbers out of the US and Europe accelerated the move to the downside. Initial commentary coming from the first face to face meeting of Obama and Boehner held on Friday was that the discussion was “constructive.”

US retail sales in September fell for the first time in four months, initial jobless claims came in higher than expected and a Fed manufacturing index came in lower than expected. Some have blamed the weak data on hurricane Sandy. In Europe, Thursday’s Q3 GDP numbers for the 17-member euro zone showed contraction for the second quarter in a row meeting the technical definition of a recession – the second since 2008. Adding to the bad news were raising tensions in the Mid-East with Gaza and Israel exchanging rocket fire. And it’s back to business for China now that its new leadership team has been confirmed. One of the signs indicating the future direction of the economy will come from GDP targets. The higher the target, the greater the propensity for growth.


Multi-month lows reached for US benchmark indexes, TSX sinks into negative territory ytd

The TSX ended the four-day period covered in this report with a 385 pt. loss to end Thursday’s session at 11,811. Since the US presidential election, the index has given back its ytd gains and is down 1.2%. For the four-day period, the Dow shed 273 pts. to end Thursday at 12,542, the S&P 500 dropped 26 pts. to close at 1,353 and the Nasdaq gave back 68 pts. to finish at 2,836. The Nasdaq is now off about 10% since its mid-September high putting it near correction territory while the Dow and S&P 500 are down about 5% since the US election.

Our Recommendation

Data supports adding to equities

  • Equities. Himalaya Jain, Director, Portfolio Advisory Group wrote: “in addition to improving US economic data, recent data from China is also encouraging. While the drama in Washington will continue to capture headlines and potentially scare investors, we think the underlying economic momentum supports our pro-equity bias. We continue to recommend buying on instances of equity market weakness.”
  • Fixed income. Andrew Mystic, Associate Director, PAG, suggests “given the Bank of Canada’s recent tone, advisors should begin to re-evaluate the duration of their portfolios - particularly given the relatively low rate environment and its potential impact on value if rates reverse course.”
  • Portfolio strategy. Scotiabank GBM Portfolio Strategist Vincent Delisle says: “notwithstanding the risks tied to a messy fiscal deal in Washington, we see a major disconnect between recent US macro momentum and negative sentiment…the US economy may yet again surprise to the upside due to positive tailwinds such as the US housing renaissance, stronger exports, and the shale oil/gas boom.”


This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. (“SCI”), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance.

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About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

Jeff is an advisor and partner with The Navigation Team at Scotia Wealth Management.

He lives in Kelowna with his wife Tanya, their two university bound daughters and their canine kids.

You can contact Jeff by email at [email protected]

Website:  www.yourlifeyourplan.ca

The Navigation Team

Scotia Wealth Management

This column is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member Canadian Investor Protection Fund.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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