TSX reaches 10-month high

Big Picture

Markets creep higher on positive US earnings and Chinese trade data

Stock markets crept higher through Thursday following the big fiscal cliff run-up a week ago.

A mix of generally good news around the globe provided the necessary lift to maintain the upward momentum. Fourth-quarter earnings season officially started in the US after the close Tuesday and thus far the news has been mildly positive. Of the 20-plus companies which have reported, the majority have announced earnings and revenues modestly higher than Q3. That’s, however, a drop in the bucket in terms of companies reporting and Market Watchers will get a better sense of the overall direction next week as the pace of reporting accelerates.

In other news, China announced a trade surplus that was built on the back of rising year over year export growth; another sign the world’s second largest economy is rebounding and good news for Canada. Meantime, global central bank chiefs decided to go easy on lenders by giving them four more years to meet international liquidity requirements. The central bankers also watered down a handful of other measures and expanded the list of assets including equities and securitized debt that now qualify as capital. In Japan, the newly elected prime minister made good on his promise to open the spigots flooding the economy with US$116 billion to stop deflation and spur growth. Finally, in Europe, unemployment continued to climb rising from 11.7% in October to 11.8% in November. Despite the increase, the ECB left the benchmark rate unchanged at .75% at its policy meeting Thursday.

Markets

S&P 500 hits multi-year high, TSX reaches 10-month high

North American markets ended the four-day period with two reaching notable highs. In Canada, the TSX reached numbers not seen since last spring, as it ended the four-day period up 59 pts. to close at 12,599. The S&P 500 is revisiting territory it hasn’t seen since 2008 as it moved higher by 6 pts. to close at 1,472. The Dow and NASDAQ both have some work to do to surpass 2012 highs but they also advanced, with the blue chip index rising 36 pts. to close at 13,471, while Nasdaq gained 20 pts. to finish at 3,121.

Recommendation from Scotia

Debt ceiling debate may cause temporary instability

• Equities - Steve Uzielli, Portfolio Manager, Portfolio Advisory Group (PAG) wrote: “While we are constructive on equities for 2013, we anticipate the market may trade in a more narrow range until the debt ceiling negotiations are concluded successfully; discussions are expected to intensify after the President’s inauguration on January 21, 2013.
• Fixed income - Andrew Mystic, Associate Director, PAG, suggests “given the Bank of Canada’s recent tone, investors 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. Term Call – we no longer see value in the mid-to-long end of the curve and recommend investors stay short at this time. Sector Call – underweight Canada, overweight Municipals, Provincials and Corporates. Currency Call – we recommend Canadian investors remain in Canadian dollars for their fixed income holdings. Alternative Strategies – marketweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.”
• Portfolio strategy - Scotiabank GBM Portfolio Strategist Vincent Delisle says: “Notwithstanding the fiscal headwinds expected to weigh on output this year, the U.S. economy is carrying positive momentum heading into 2013…valuations could provide support again in 2013 as systemic risk slowly moderates.”

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