National Bank of Canada Eco. & Strat. Team
National Bank of Canada
Highlights
Global equities have been consolidating in recent weeks as uncertainties about Greece and U.S. monetary policy test investor resolve. With P/E ratios now roughly in line with historical averages, the outlook for earnings growth will be the key factor in the direction of equity markets. Fortunately, that outlook is constructive for the second half of 2015.
Our Q3 growth forecast is especially aggressive for the U.S. If we are right, the “more decisive evidence” of sustained economic growth that the Federal Reserve has said it would like to see before embarking on interest-rate normalization is likely to come sooner rather than later. Expect some turbulence as financial markets adjust to this scenario. That said, volatility due to monetary policy uncertainty need not be synonymous with market correction.
Though our recommended asset-class allocation is unchanged this month (equities still over weighted relative to our benchmark), we have made a slight change in our regional equity allocation. Guided by past experience of Fed tightening phases, we have reduced the beta of the equity portfolio by shifting away from Canada and emerging markets in favour of the U.S. and EAFE. This adjustment is consistent with our forecast of a 3-to-5 cent depreciation of the Canadian dollar over the coming months. Our year-end targets are 15,600 (revised down from 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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