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David Allard

Strong January for NA stocks

Big Picture

Equity markets consolidate gains at month-end

Stocks staged a modest pull back in the finals days of the month but it wasn’t nearly enough to reverse the impressive gains recorded in January.

Taking the wind out of the markets sails were mixed economic data out of the U.S. which was released at the latter part of the week. Most concerning was a report by the Commerce Department Thursday that showed consumer spending had risen at half the pace in December - 0.2% versus 0.4% in November. Economists had expected consumers to start spending less this year simply because their take-home pay had been reduced. The fiscal cliff agreement reached January 1 allowed Social Security taxes to rise this year leaving single- and dual -income earning households with less in their pockets; about $1,000 less for single people making $50,000 a year and about $4,500 less for two income earners in the same household. The diminished pay could slow consumer spending, which represents about 70% of economic growth, at an important moment. The U.S. economy unexpectedly shrank in Q4 at an annual rate of 0.1%, the government said Wednesday. The dip was a reminder of the economy’s vulnerability. A fact not lost on the Fed which delivered a relatively tepid assessment of the economy also on Wednesday. The Fed would, as a result, keep its foot on the gas and keep its bond-buying program in place for the foreseeable future. Today’s (Feb. 1) U.S. jobs report may set the tone for the markets as we get February underway.

Markets

Strong January for North American stocks

The month was kind to stock investors on both sides of the border. The TSX Composite index advanced 2.02%, the S&P 500 moved higher by 5.04%, the Dow gained 5.77% and the Nasdaq rose 4.06%. Of particular note was the multi-year high breached by the S&P 500 when it crossed the 1,500 pt. mark; the Dow, meantime, is just about 300 pts. away from its 2007 high. For the four day-period covered in this report, the TSX lost 131 pts. to close Thursday at 12,685, the S&P 500 shed 4 pts. to close at 1,498, the Dow lost 35 pts. to finish at 13,860 and the Nasdaq gave back 7 pts. to end at 3,142.

Scotia’s Recommendation

Investors should be reducing bond exposure and shifting toward equities on any stock market weakness

  • Equities - Himalaya Jain, Director, PAG, wrote: “In addition to improving fundamental data (which should drive corporate earnings), one of our key themes for 2013 is that the three decade long bull market in bonds is likely over. As bond portfolios underperform (and generate rare negative returns that may catch many investors by surprise), we expect the rotation into equities could push valuation multiples higher leading to a very attractive equity environment. We continue to favour U.S. equities over Canadian ones, and prefer cyclicals over defensive sectors.”
  • Fixed income - Andrew Mystic, Associate Director, PAG, wrote “U.S. funds flow data are suggesting that bonds are overbought. Between 2009-2012 roughly U.S.$1,055 billion of net fund inflows migrated to fixed income funds. By far, this represents the largest fixed income inflow seen over the course of a near 20-year period. Although the 2008 crisis and the subsequent turbulence warranted a migration into the safety/comfort of fixed income, the current landscape is suggesting that complacency could carry risks – in what has typically been perceived to be the more stable asset class.”
  • Portfolio strategy - Scotiabank GBM Portfolio Strategist Vincent Delisle says: “Positive equity flows are a more common fixture in the first quarter, and we believe improving macro data (U.S. housing, employment), seasonality, and a liquidity drawdown should support equity markets further in the near term.”

 

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.



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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]

Website:  www.yourlifeyourplan.ca







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.


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