National Bank of Canada Eco. & Strat. Team
National Bank of Canada
Highlights
Global equities continue to struggle. In Q3, the MSCI AC index is down for a second consecutive quarterly decline – a first in four years. A deteriorating earnings backdrop is exacerbating the downward pressure on the index.
We still think earnings growth is possible in 2016, provided of course that a few things go right. First, the global economy needs to get out of its funk. After a challenging first half of the year, world industrial output is picking up. Otherwise, USD appreciation needs to be kept in check to break the disinflationary trend that is currently dogging the earnings outlook. The threat of a Fed rate hike notwithstanding, there are policies that could offset USD strength. One would be to include the Chinese yuan in the IMF’s basket of reserve currencies.
Our asset mix is unchanged this month, with equities still overweighted relative to bonds and a regional bias towards the United States. The key to avoidance of a bear market is a combination of continued U.S. growth and a low-inflation environment that allows the path of monetary normalization to be gradual. That is the environment today and in our view it is likely to persist for some time. We would reconsider our asset mix if credit market spreads were to increase to the point of undermining the 2016 profit outlook.
Our sector allocation for the S&P TSX is unchanged this month. We remain comfortable with our current recommendation to overweight bank stocks as the economy is growing again and recent gains in fulltime employment continue to support the housing market.
This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.
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