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Msg  65352 of 67080  at  7/10/2019 8:29:59 PM  by

carswell


Market Call

MARKET CALL NEWSLETTER
July 10, 2019


Cameron Hurst's Top Picks: XLRE, IPAY and EWL

BNN Bloomberg

MARKET OUTLOOK

The crux of Equium Capital’s investment philosophy centres around finding the most suitable equilibrium between risk and return given the prospective global market environment. Simply put, our chief goal is to understand what’s happening in markets and position portfolios appropriately to first protect capital and then earn a reasonable long-term return for our clients.

During much of the investing lifecycle, assessing risks and constructing well-balanced portfolios is fairly straightforward. However, this simply isn’t the case during turning points in the cycle. Faced with a long list of contradicting indicators, investors must now determine whether it’s time to turn the ship in preparation for a storm or ignore the gathering clouds and continue sailing in the open water.

President Trump extended the natural length of this bull market with his tax cuts, propelling corporate profits to record highs in 2018. But the sugar high was short lived and managements are struggling to produce any earnings growth at all against a backdrop of tariffs, geopolitical tensions and tighter monetary policy. Street consensus for year-over-year Q2 and 2019 earnings growth are both virtually flat. Adding corporate buybacks, which would better support long-term economic expansion if reallocated to capital expenditures, only yields earnings per share growth for the S&P 500 of about 2 to 3 per cent for all of 2019.

Somewhat counter-intuitively, this can be positive for certain sectors of the market, such as real estate. Low-but-positive growth isn’t the end of the world because it enables focused investment yielding reasonable risk-adjusted returns. To this end, Equium Capital’s portfolios remain “barbelled” across secular growth (software and fintech) and defensives with growth (real estate and staples). Equities in aggregate are only modestly over neutral at 64 per cent, but more than enough to participate in a rising market. Balancing this, portfolios hold 32 per cent fixed income, almost entirely in medium-to-short duration government issues.

Fear is easily inspired these days. One need only enumerate the myriad indicators suggesting caution, most notably global PMIs in contractionary territory. And while we note the New York Fed’s recession indicator, itself an aggregation of signals suggesting the gathering storm clouds are no joke, our process continues to position for another six to 12 months of positive returns.

In that context, it is worth highlighting our process finally added gold exposure a month ago as central banks revealed their more dovish inclinations, driving inverted yield curves and negative rates around the globe. So clearly balance is warranted and we continue to view a barbell approach as the most prudent.




 
 

                           

 

 

SPECIAL REPORT: Dealing with Divorce

 

HELPING CLIENTS DEAL WITH DIVORCE: The unfortunate reality is that 38 per cent of marriages — almost two in five — end in divorce, according Statistics Canada. And while it takes an emotional toll, it can also take a financial toll. This is where a trusted advisor can help clients get their financial life back on track.

PREPARING FOR A DIVORCE: The BNN Bloomberg Advisor panel discusses the important steps individuals should take if they are planning to file for divorce or separation — and the importance of keeping pre-marital assets separate.

THE GREY DIVORCE AND RE-RETIREMENT PLANNING: The panel tackles the issues surrounding a "grey divorce," when older couples of the baby boomer generation split after decades of marriage and the kids have left the house.

Have a question you would like to get answered? Send us an email.

 


Christine Poole's Top Picks: Loblaw, JPMorgan and United Technologies

BNN Bloomberg

MARKET OUTLOOK

Much attention has been focused on U.S. market indexes making new highs, surpassing levels set in September 2018. Our perspective is that stock markets have been relatively range-bound since last fall, swayed by two factors: 1) central bank interest policy and 2) trade tensions. Their impact on economic growth and corporate profits will continue to dictate market direction.

While the current U.S. expansion is 10-years old, its pace of recovery pales compared to prior economic expansions. The previous longest expansion ran from 1991 to 2001, lasting 120 months; in the first 39 quarters, U.S. GDP increased 43 per cent. By comparison, in the 39 quarters through this March, GDP grew just 25 per cent. At its present pace, the current cycle would have to last six more years to match the cumulative growth of 1991-2001.

The one achievement of the current expansion is the decline in unemployment, coming in at 3.6 per cent in May 2019 (the lowest in half a century) from a peak of 10 per cent in October 2010. A healthy employment situation is boosting U.S. consumer confidence which remains elevated by historical standards.

As anticipated, a truce was reached at the G20 summit between Trump and Xi to avoid escalating tariffs and agreeing to resume trade talks. While it makes for encouraging headlines, nothing substantive has been resolved.

Global economic growth has resoundingly slowed over the past year, hampered by ongoing trade tensions, higher tariffs and geopolitical uncertainty. Central banks across the globe are responding with synchronized easing, fueling a rally in both fixed income and equity markets.

Accommodative central bank policy is a tailwind for markets so long as economic and corporate profit growth are sustained. So far this year, U.S. economic data while still relatively sound, has been weakening and earnings revisions have been negative. Stock markets however are up, suggesting a degree of optimism embedded in future expectations.




Essential Links

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