National Bank of Canada Eco. & Strat. Team
National Bank of Canada
Highlights
Global equity markets have once more avoided a correction (decline of more than 10%). In the recent turbulence the maximum pullback of the MSCI All-Country World index was 8.3%. Since then the index has regained all of the lost ground and gone on to new all-time highs. Its solid rebound is due in large part to the U.S. market, which continues to outperform the other markets of the globe.
The MSCI Canada index is down 2.8% from early September, though Q3 earnings were on the whole solid. The doldrums of Canadian equity prices can be attributed to the shadow cast on future S&P/TSX earnings by the slide of commodity prices. Investors are worried not only about the ability of the global economy to rebound from a year of disappointments but also by risks of oversupply, notably in energy. In our view, the gloom about the prospects for cyclical stocks may be nearing an end. The global economy remains resilient as shown by the latest data on global trade.
Our asset allocation remains unchanged this month. We continue to overweight equities relative to our benchmark while slightly underweighting fixed income products. Geopolitical uncertainty notwithstanding, we think the odds still favour economic expansion in the coming quarters. Credit market spreads (for high-yield and emerging-country debt) remain tight, low inflation is prompting a number of central banks to increase liquidity and U.S. households are borrowing again as the labour market strengthens. In these circumstances we continue to see upside in equity markets. Our year-end targets for 2015 are 16,200 for the S&P TSX and 2,220 for the S&P 500.
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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