JMRD Market Observer for October 30th, 2015 – NBFM Monthly Equity and Economic Monitors

October 30, 2015

 **October 30th Issue of The JMRD Market Observer**

In This Week’s JMRD Market Observer

 

  • NBFM Monthly Equity Monitor
  • NBFM Monthly Economic Monitor
  • Multiple Asset Class (MAC) Basket Note
  • JMRD Basket Corner
  • JMRD Insurance Corner
  • Retirement Corner
  • Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

 

 

NBFM Monthly Equity Monitor – November 2015

 

Highlights

 

  • After two consecutive quarters of contraction, global equities rebounded early in Q4. At this writing, the MSCI AC had recouped about two-thirds of the 14% it lost between April and September. Encouragingly, the advance has been broad-based geographically.
  • So far in the Q3 announcement season, U.S. earnings are showing resilience. But in our view, the market is yearning to look beyond the Q3 reporting season to focus on an improving earnings outlook. We note that surprises have turned positive for the major economies and have become less bad for emerging economies.
  • In China, the central bank is taking steps in order to stimulate credit growth. But the economy stands to benefit from more than just monetary stimulus. Beijing is set to unveil its 13th five-year plan, a road map for economic and fiscal policy that is likely to include a timeline for further integration with global financial markets, via convertibility of the yuan under the capital account.
  • Our asset mix is unchanged this month, with equities still overweighted relative to bonds. We would reconsider our asset mix if credit market spreads were to widen to the point of undermining the 2016 profit outlook. Our sector allocation is unchanged this month.

 

Equity Monitor Nov 2015

 

 

NBFM Monthly Economic Monitor

 

Highlights

 

  • Global economic growth this year is set to be the worst since the 2009 recession. And that despite continuing stimulus from major central banks and a massive tax cut to world consumers in the form of plunging energy prices. China’s rebalancing act is proving to be more difficult to absorb and the ripple effects across the globe more widespread than first thought. Beijing’s new five-year plan won’t prevent further deceleration in China’s GDP growth. And with diverging monetary policies between the Fed and other major central banks, the US dollar should continue to appreciate and put further pressure on issuers of USD-denominated debt particularly in emerging markets. We have cut our forecast for 2016 world GDP growth to just 3.3%.

 

  • Despite decelerating in the third quarter, the US economy remains on track to grow this year at roughly 2.5%, the best performance in five years. While politicians finally delivered some good news by raising the debt ceiling and agreeing on a budget for the next two years, that’s not to say there won’t be challenges ahead. Consumption and housing are likely to soften after a strong 2015. This year’s employment surge won’t be replicated and the benefits of low pump prices will fade for consumers. The impacts of the strong US dollar will also continue to weigh on the economy next year. We have, accordingly, cut our US GDP growth forecast for 2016 to 2.3%.

 

  • Given limited information and uncertainties over timing of proposed policies from the newly-elected Liberal government, the latter’s net effect on the economy is unclear at this point. The boost provided by the infrastructure plan and tax cuts for middle-income Canadians may be offset somewhat by the drag generated by the expansion of the Canada Pension Plan. Forcing Canadians to save may provide an extra layer of padding to their nest eggs but it can also hurt consumption immediately. We are leaving our 2016 Canadian growth forecasts unchanged, at least until there is more clarity about fiscal policy.

 

Monthly Economic Monitor

 

 

Multiple Asset Class (MAC) Basket Note

 

We have alluded to the MAC Basket in previous Market Observers because it is a core holding in some portfolios.  For a refresher, the MAC Basket is managed by a group of portfolio managers at FBN Capital out of Montreal.  Using a diversified portfolio of ETFs, they aim to minimize the volatility ascribed to traditional asset classes. More specifically, they seek to attain a return similar to that obtained by a traditional portfolio with lower volatility. Both the diversity of asset classes (bonds/fixed income, equities) and the inclusion of non-traditional asset classes allow for a reduction in risk and volatility.

 

The management team recently made a change in the Basket which we thought we’d share with you.  It wasn’t a decision to change a certain geographic or asset class weighting.  Instead, it was a decision to reduce its exposure to US dollar investments because of its appreciation versus the loonie, which we found interesting.  We have attached a brief explanation of their rationale.

 

Multiple Asset Class Basket Note

 

 

JMRD Basket Corner

 

DIG Basket

 

Manulife (MFC) – “Manulife sees Canada taking back seat in post-crisis growth push” 

 

All-Cap Growth Basket

 

Restaurant Brands (QSR) – “Burger King’s Owner Beats Estimates, Helped by Chicken Fries”

 

U.S. Growth Basket

 

Nike (NKE)  – How Nike is Making it Easier to Run on a Cold Winter Night – Fortune

 

Starbucks (SBUX) – “Starbucks Reports Jump in Profit” Chain has been aiming to attract more customers through its digital initiatives and new menu offerings

 

Visa (V)“Visa Nears $22 Billion Deal to Buy European Counterpart” 

 

 

Week At a Glance

 

See Week At a Glance Report.

Week At a Glance

 

 

Retirement Corner

 

 

 

 

 

Reads of the Week

 

 

 

 

 

Economic Reports

 

Monday November 2nd – Canadian Manufacturing Index; US ISM Manufacturing Index

 

Tuesday November 3rd – US Factory Orders

 

Wednesday November 4th – US ADP Employment Change, US ISM Service Sector Index

 

Thursday November 5th – US Initial Jobless Claims

 

Friday November 6th – Canadian Building Permits, Canadian Net Change in Employment and Unemployment Rate; US Non-Farm Payrolls and Unemployment Report

 

 

Earnings Reports

 

Monday November 2nd – AIG, VISA

 

Tuesday November 3rd – Allied Properties, Gibson Energy, Riocan REIT, TransCanada Pipelines, Keyera Corp, Kellogg, Mosaic

 

Wednesday November 4th – Home Capital Group, Pason Systems, Linamar, SunLife Financial, MetLife

 

Thursday November 5th – Agrium, BCE, Artis REIT, Canadian Natural Resources, CCL Industries, Enbridge, Crescent Point Energy, CI Financial, Inter Pipeline, Magna Corp,                                                                                                                                                                                                                                                                               Parkland Fuel, Pembina Pipelines, SNC Lavalin, Telus

 

Friday November 6th – Baytex, Brookfield Asset Management, Stella Jones, Walt Disney Co.

 

Have a good weekend!

 

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