The Playbook - July 2, 2018

June 29, 2018 • Playbook


 

Weekly Commentary – July 2, 2018

Alfred Lam, MBA, CFA
Senior Vice-President
and Chief Investment Officer
Richard J. Wylie, MA, CFA
Vice-President, Investment Strategy

Richard Wylie’s podcast will return the week of July 16, 2018.

Economic Calendar

Date Release Period Consensus Previous
U.S.        
July 2 Markit Manufacturing PMI Final June 18 54.6 56.4
July 5 ADP Employment Change June 18 190 k 178 k
July 5 IBD/TIPP Economic Optimism July 18 53.7 53.9
Canada        
July 6 Balance of Trade May 18 -$50.5B -$1.9B

Key Earnings:
July 2: A10 Networks Inc., Herman Miller Inc., JA Solar Holdings Co. Ltd.
July 3: Acuity Brands Inc., PriceSmart Inc., Seanergy Maritime Holdings Corp.
July 4: Globus Maritime Ltd.
July 5: Acorn International Inc., Cherokee Inc., Griffin Industrial Realty Inc.
Source: Trading Economics, Yahoo Finance

Market Focus

Canadian economy showing signs of strength
Statistics Canada announced that gross domestic product (GDP) expanded 0.1% in April, down from a gain of 0.3% in March. Economists were expecting a flat reading. April’s GDP gain marks the third month of consecutive gains, led by a pickup in the manufacturing sector and a rebound in the real estate sector. The manufacturing sector was up 0.8% in April, with gains in both durable and non-durable manufacturing. The real estate sector gained 0.5% during the month. This is the biggest gain for real estate since stricter mortgage regulations were introduced at the beginning of 2018. The sector, which has been challenged by a slumping housing market, is now showing signs of stabilization. The Canadian economy appears to be on track for growth to accelerate in the second quarter.

U.S. GDP receives another downward revision
The U.S. Bureau of Economic Analysis announced that real GDP grew at an annual rate of 2.0% in the first quarter of 2018, a downward revision from the previous estimate of 2.2%. The previous figure was revised down from the original estimate of 2.3%. This release is the third and final estimate. In the final quarter of 2017, real GDP increased 2.9% on the same basis. The smaller gain in the first quarter was attributable to downward revisions in services spending and inventories, which originally reported small contributions. The largest contributor to GDP, consumer spending, rose 0.9%, down from the previous estimate of 1%. Government trade data also reported fewer exports compared to imports during the quarter. However, the economy is showing signs of acceleration into the second quarter.

Longer View

Following several years of a general expansion in the price-earnings ratio of equities, we believe returns from this asset class will moderate somewhat and become more closely tied to the rate of growth in company earnings. With equity market volatility increasing to at least the normal range, it's important to keep in mind that equities are best suited for long-term investing, and that the allocation in your portfolio should reflect your investment horizon and risk tolerance. Fixed-income investments, while generally providing limited income in today's low interest rate world, are an effective diversifier in a portfolio. When there is extreme pessimism in the equity market, fixed-income tends to outperform. There is no one asset class that looks better than others, in our view, as their current valuations accurately reflect their potential and risk. Talk to your professional advisor to ensure your portfolio is optimized and continues to meet your needs.

Weekly Summary

June 27
The U.S. Census Bureau announced that durable goods orders declined 0.6% in May, following an upwardly revised 1.0% decline in April (originally reported as -1.7%). Excluding transportation, new orders decreased 0.3% in May. Excluding defence, new orders decreased 1.5%. With the upward revisions to the previous data, these figures are broadly in line with market expectations. Orders for durable goods indicate how busy manufacturers will be in the months to come, as they work to fill those orders.

June 28
The U.S. Bureau of Economic Analysis announced that real GDP grew at an annual rate of 2% in the first quarter of 2018, a downward revision from the previous revised estimate of 2.2%. The previous estimate was revised down from the original estimate of 2.3%. This is the third and final estimate. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

 

Although the above information has been compiled from sources believed to be reliable, as at the date indicated, we cannot guarantee its accuracy or completeness. The information is provided solely for informational and educational purposes and is not to be construed as advice in respect of securities or as to the investing in or buying or selling of securities, whether express or implied. All data provided is subject to change without notice. The authors of this publication are employed by CI Investments Inc. or its affiliates. ®The Assante symbol and Assante Wealth Management are registered trademarks of CI Investments Inc. Assante Wealth Management and/or Assante Wealth Management and design are trademarks of CI Investments Inc. Neither CI Investments Inc. nor any of its affiliates or their respective officers, directors, employees or advisors is responsible in any way for damages or losses of any kind whatsoever in respect of the use of this information. © 2018 CI Investments Inc.

 

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