Big Picture

Stocks advance … again

Global equity markets largely advanced this week as evidence of an expanding US economy grows.

This week it was US retail sales which jumped higher. The rise in sales was the fourth consecutive and the biggest since September suggesting consumers are holding up south of the border. Thursday brought positive jobs news as filings for new unemployment benefits fell again last week. The decline follows drops in the two previous weeks. An improving labour market in combination with solid consumer spending would be a nice one-two to go along with the strengthening housing market. Interestingly, data such as this which stays good but not great appears to be the preferred state for investors as it almost ensures the Fed will not pull back or raise interest rates; the best of both worlds. On Monday, the US data trumped bad industrial production and retail sales numbers out of China as well as downbeat comments from Germany’s central bank chief who warned the euro crisis is not over. Of note but not widely reported was Ireland’s launch of its first 10-year bond since 2010 and at lower borrowing costs than Spain or Italy; a possible green shoot in the euro-zone recovery process.

Markets

S&P 500 set to join Dow at an all-time high

At market close Thursday, the S&P 500 stock index – a better proxy for US stock market performance than the 30-member Dow – was just two points shy of its all-time high. If it can tack on the two or more points today (March 15), it will join the Dow and a number of other foreign benchmarks at all-time highs. The Dow, meantime, extended its session winning streak to ten Thursday as the index added another 142 pts. to finish at 14,539 over the four-day period. The S&P 500 added 12 pts. to finish Thursday at 1,563 and the Nasdaq advanced 14 pts. to close at 3,258. The TSX, meantime, had two winning and two losing days and the index finished 36 pts. lower to close Thursday at 12,799.

Scotia’s Recommendation

Our outlook on equities remains positive, particularly U.S. equities

• Equities - Geoff Ho, Director, Portfolio Advisory Group (PAG), wrote – “U.S. equities have been propelled higher by a trifecta of drivers: gradual reduction of headline risk, strong corporate earnings, and positive economic data. With new highs come concerns that U.S. equities appear expensive and are due for a correction. From a technical near-term perspective, we agree that U.S. equities are approaching overbought territory. However, recent displays of resiliency suggest that pullbacks are likely to remain limited in magnitude as investors appear ready to buy on weakness. From a fundamental standpoint, U.S. equities remain attractive as valuations are still reasonable (12.9x forward P/E on the Dow and 14x on S&P500). With limited corporate and economic data due this week, we expect equities to move sideways until the next round of actionable drivers is reported.”
• Fixed Income - Andy Mystic, Director, PAG, wrote: “Investors should continue to maintain a market weight exposure to high yield. Although higher yielding credit is generally looking expensive at current levels, expectations for an extended pause by Bank of Canada suggests that high yield exposure will likely remain a useful strategy for enhancing yield in a relatively low rate environment.”
• Preferred - Tara Quinn, Director, PAG, wrote: “We have seen several banks redeem their existing high dividend perpetual preferred shares so far in 2013. It is expected that this trend will continue going forward.”

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.