Saturday, April 19th8.0°C
David Allard

Markets take a breather

Big Picture

Bank earnings and upbeat economic news highlight an active week

In contrast with last week’s quieter, U.S. holiday-shortened week, the first week of December was a comparatively active one in the markets featuring Q4F13 Canadian bank earnings and a number of important economic data points. All major Canadian banks save for Laurentian reported Q4F13 earnings. CIBC, Royal Bank, and Canadian Western Bank exceeded consensus earnings expectations, while TD and BMO (adjusted for a security gain) missed. BNS and National Bank results were in line. CWB, NA, BMO, and TD increased their dividends. NA’s dividend increase was higher than expected and TD’s was unanticipated. Two banks – TD and NA -- announced 2:1 stock splits while CM unexpectedly refrained from doing so. One final and somewhat surprising bank-related development was RBC’s announcement that CEO Gordon Nixon would be retiring effective August 2014, and the appointment of Dave McKay as his successor. For the week through Thursday’s close the S&P/TSX Bank Index declined 3.2%, while the TSX declined 1.5%. U.S. economic releases during the week were generally positive. Most notably the November change in nonfarm payrolls increased sequentially to 203k, exceeding expectations of 185k, and the unemployment rate declined to 7.0%, lower than the consensus estimate of 7.2% and October’s 7.3%, despite an increase in the labor force participation rate. Q3F13 U.S. GDP was stronger than expected at +3.6% annualized (estimate +3.1%), and the same was true of consumer confidence (University of Michigan December preliminary reading 82.5 versus 76.0 estimate), the November ISM Manufacturing index (57.3 versus 55.1 estimate) and auto sales (16.31M November SAAR versus 15.8M estimate). At the time of writing the S&P500 was down a modest 0.2% over the week after a strong Friday rebound, as U.S. 10-year Treasury yields increased approximately 11 bps to 2.86%. On the commodities front, WTI advanced 5% over the week to US$97.46 following TransCanada’s Dec. 3 announcement it would open the southern portion of its Keystone pipeline in January 2014 to transport crude from Cushing OK to the Texas coast, helping to alleviate a key bottleneck.


Markets take a breather

The Dow and S&P 500 continued their longest losing streak this year as investors take a breather following strong quarterly earnings. The Dow declined 263 pts. to close at 15,823 and the S&P 500 lost 20 pts. to close at 1,785. In comparison, the TSX fell over four sessions with the index shedding 195 pts. to close at 13,200.

Our Recommendations

Positive macro-economic data and cash on the sidelines continues to support equity markets

  • Equities - Himalaya Jain, Director, Portfolio Advisory Group wrote: “We recently released our 2014 outlook and expect equities to outperform fixed income again next year. With further evidence that the U.S. economic recovery is accelerating and Europe and China are gradually improving, increasing risk appetite should result in further rotation into equities and out of bonds. Based on current valuation, we expect 2014 Canadian and U.S. equity returns to be in the 7%-10% range.”
  • Fixed Income - Andrew Mystic, Director, Portfolio Advisory Group wrote: “The US data this week continued to look stronger but, consistent with our expectations, bond markets are taking the data in better stride. It makes sense to us that this would be occurring for two reasons: (1) Markets seem to be expecting that the impact of seasonal hiring and government shutdowns are likely going to leave the Fed holding off on tapering until Q1/14, when they can get a cleaner read of the data (2) To avoid another spike in rates that could further derail US housing, any tapering action will likely be accompanied by other monetary policy directives/actions intended to contain rates (e.g. a change in unemployment target guidance or other monetary policy action). This seems to be calming market expectations regarding how quickly rates should, or will, unwind. With this context in mind, it didn’t surprise us to see that the US 10-year held in and even rallied 2bps on the back of Friday’s a non-farm payrolls print – a print that came in a good deal stronger than consensus expectations (203k vs. 185k). Scotia economics is not forecasting that the US 10-year will reach 3.40% by Q4/14. Although we do believe rates will rise, it now seems increasingly likely that the rise in rates will be more gradual as the Fed seemingly engineers a more settled path to rate normalization. Nevertheless, the Fed remains in uncharted waters here – risks will continue to abound.”  


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.

Read more Navigating Your Wealth articles


About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

After two decades in the financial services industry, Jeff's experience as an advisor and branch manager define his approach to providing customized financial planning, estate planning, and managed income solutions. Key to this approach is a thorough understanding of the unique challenges and goals that exist in every client's life. He is a partner in Navigation Wealth Management.

Jeff holds the Certified Financial Planning and Chartered Investment Manager designations. He lives in Kelowna with his wife Tanya, and their two (almost adult) enterprising children.


You can contact Jeff by email at [email protected]



The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.

These articles are for information purposes only. It is recommended that individuals consult with a financial advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.

Previous Stories

RSS this page.
(Click for RSS instructions.)