The big picture
Positive US economic data fails to impress
The trend to more upbeat US economic data continued this week but it wasn’t enough to carry markets higher. The most recent encouraging sign was durable goods orders which rose, a better-than-expected, 2.2% in February from a month earlier. That was the largest increase since November 2013 and blew past estimates of a .8% rise. US consumer confidence also smartly rose to 82.3; well above expectations of 78.9. And on Thursday the number of people filing for jobless benefits fell to a four-month low while Q4 GDP growth was raised to 2.6% from 2.4%. Sentiment had been dented earlier in the week after two purchasing manager’s indexes disappointed. The first – a PMI measuring manufacturing activity in China – contracted for the third consecutive month slipping to 48.1 in March compared to 48.5 in February. In Europe, the PMI fell to 53.2 in March compared to 53.3 in February. The silver lining to both PMI drops came from central bankers in both countries which separately hinted that they may take steps to stimulate economic growth. Meantime, concerns continue to linger over Ukraine as the US and EU agreed Wednesday to prepare possibly tougher sanctions against Russia following its annexation of Crimea. Earlier in the week, the G7 suspended Russia’s participation in the G8 and cancelled plans to meet as ‘8’ in Sochi later this year. Finally, the IMF announced an US$18 billion loan to help the financially impaired Ukraine with other donors – Japan and the EU – already pledging assistance.
Stocks hesitant ahead of quarter end
Stocks have had a tough time advancing of late and with only two trading days left in the quarter it appears Canada may exit the period as the leader. From the start of the year to close Thursday, the Dow has slipped 1.88%, the S&P 500 is up.04%, the Nasdaq is off .61% and the TSX has run up 4.09%. For the four-days covered in this report, the Dow fell 38 pts. to end at 16,264, the S&P 500 shed 17 pts. to finish at 1,849, the Nasdaq dropped 125 pts. to finish at 4,151and the TSX gave back 157 pts. to end Thursday at 14,178.
Continue to recommend above-average cash levels
Equities - Himalaya Jain, Director, Portfolio Advisory Group wrote “Historical data suggests that equity markets perform very well in the 12 months leading up to the first Fed rate hike. However, as we suggested in last week’s Here’s What We’re Thinking, historical equity market return data leading up to the first Fed rate hike may not be applicable in the current scenario because the start of tapering (Dec 2013) could be viewed as the commencement of Fed tightening, and the period of out-sized equity market performance prior to the first rate hike may already be behind us. At this point, while we remain constructive on equities, our 2014 return expectations are relatively modest (7-10%). Given elevated geopolitical tensions we recommend holding above average levels of cash and cash alternatives with an aim of deploying on instances of weakness.”
Preferreds - Tara Quinn, Director, Portfolio Advisory Group wrote “The preferred share market continues to creep higher albeit on lower than average volumes as investors are being more cautious on purchase prices in order to avoid negative yields (to worst). While we still favour bank perpetual preferred shares, we encourage investors to be aware of the potential for early call dates and to choose entry prices carefully. In the rate reset sector, the difference in yields between investment grade securities and non‐investment grade securities still persists as investors have become more focused on the credit of the underlying company. Creating a ladder of rate reset securities is a good approach to be exposed to various interest rate environments.”
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