US advances, TSX lags

Big Picture

Euro-zone political worries, Fed raises US outlook, bank watchdog to oversee CMHC

Major global equity markets stumbled out of the gate Monday but picked themselves up over the following days with many ending in positive territory by the close of trade Thursday.

Euro-zone political turmoil triggered the sell-off the first trading day of the week as French and Dutch politicians came under increasing pressure to reverse or dilute tough austerity measures. The UK’s fall into a double-dip recession is also proving divisive for Britain’s coalition government led by PM David Cameron, an austerity champion.

In the US, markets beat back euro-zone fears and negative readings on durable goods orders and unemployment benefits applications to recoup Monday’s losses and then some. Chairman Ben Bernanke’s quarterly economic update yielded no surprises as the Fed slightly raised its outlook for the US economy while lowering expectations for further quantitative easing.

In Canada, the CMHC got a new boss due to concerns over the booming housing market. The mortgage insurer now reports to the Office of the Superintendent of Financial Services, the banking regulator. The move is designed to increase oversight of CMHC’s $600 billion mortgage portfolio which has almost doubled since 2007. Meantime, the country’s largest province had its credit rating slashed by Moody’s a day after Standard & Poor’s threatened to do the same. The downgrade hikes Ontario’s borrowing costs and reduces the attractiveness of the province’s bonds.


US advances, TSX lags

After a 158 pt. fall Monday, the S&P/TSX scratched its way back to end the four-day period at 12,145 – two points lower than where it started the week. Oil, gold and copper all ended higher over the four sessions with the price of crude rising to over US$104 a barrel, gold settled at US$1658 an ounce while copper closed at 3.78 a pound.

South of the border, the Dow, S&P and NASDAQ also endured a tough start to the week but were able to rebound and close Thursday solidly up. The Dow, which opened at 13,029, settled at 13,204, the S&P 500 added 21 pts. to close at 1399 and the Nasdaq proved to be the strongest performer rising to 3,050 from 2,969.

Our Recommendation

Further U.S. equity market weakness expected, but presents opportunity

  • Equities. Steve Uzielli, Portfolio Manager, Portfolio Advisory Group (PAG) wrote: “We believe there is further downside risk in U.S. equities in the short term, but ultimately view any pullback as being healthy for the longer-term outlook for equities. ”

  • Fixed income. Andrew Mystic, Associate Director, PAG, highlights the following recommendations: “Term Call – given the recent decline in yields, 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 – new call – marketweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.”

  • Portfolio strategy. Scotia Capital Portfolio Strategist Vincent Delisle says: “We believe a reversal could develop in the second half of the year, but "risk-off" sentiment could prevail well into Q3. We believe commodity leadership should come back when Chinese slowdown fears fully abate and world GDP growth accelerates back towards 4%.”


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

Jeff is an advisor and partner with The Navigation Team at Scotia Wealth Management.

He lives in Kelowna with his wife Tanya, their two university bound daughters and their canine kids.

You can contact Jeff by email at [email protected]

Website:  www.yourlifeyourplan.ca

The Navigation Team

Scotia Wealth Management

This column is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member Canadian Investor Protection Fund.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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