Investors’ spirits lifted by economic data and fiscal cliff optimism
Optimism returned to global markets this week on the back of solid economic numbers out of the US and China, as well as expected progress on the fiscal cliff.
Sensing the mistrust in the markets, Democrats and Republicans both came out with conciliatory words this week regarding tax and spending deliberations ahead of the January 1 fiscal cliff deadline. This helped placate markets over the US shortened trading week but it appears sentiment will be tethered to the ongoing talks over the coming weeks. Economically, the news was also good particularly out of the US. Existing home sales climbed above forecast, inventories of existing homes for sale fell and the Commerce Department reported a 3.6% October increase in residential new homes construction.; economists had expected a 4.5% decline. Initial jobless claims also dropped south of the border. Meantime, Chinese manufacturing activity expanded in November for the first time in 13 months, which buoyed sentiment as well.
News out of Europe was also largely positive as euro-zone finance officials said they were confident they could get Greece’s debt repayment plan back on track. The country is falling behind in its debt reduction agenda which has led to handwringing among creditors. Although no concrete steps have come out of the finance meetings, a solution is, according to participants, in sight. Finally, a ceasefire between Israel and Hamas was another welcome development.
North American markets rebound from last week’s losses, triple-digit gains for TSX and Dow
Markets staged an about face from last week’s disappointing showing with the TSX jumping 276 pts. for the four-day period to end Thursday at 12,153. South of the border, the Dow ended up 248 pts. before its 12,836 close Wednesday in advance of the Thanksgiving holiday. The S&P 500 was also up over the three days as it advanced 32 pts. to 1,391 while the Nasdaq added 73 pts. to finish at 2,926.
U.S. housing tailwinds could offset some of the fiscal drag
- Equities. Himalaya Jain, Director, Portfolio Advisory Group wrote: “we see recent equity market weakness as a buying opportunity as the current sell-off is amidst a backdrop of improving underlying fundamentals: US consumer confidence is at a 5-year high; US housing improving; US job growth is still positive; and China PMI looks like it has bottomed.”
- 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: “the housing recovery is likely to trigger an increase in household spending and a firmer pace of hiring in the construction sector, which in turn will support economic growth.”
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