The equity markets continue to be tumultuous, posting declines of 2.5% and 3% respectively for the US and Canadian markets just this week, which has now pushed the North American capital markets negative for the year as well. Not that we are trying be all doom and gloom, but rather the markets are in a state of flux, adjusting to the very changed commodity and interest rate environments that began last September. Within which opportunities can be found, but for the most part holding elevated levels of cash or short term fixed income along with “blue chip” equities (like Canadian Banks etc…) are good places to wait out the turbulence.
We are also in the midst of earnings season for the S&P 500 reporting companies, where we have seen modest earnings growth, excluding the energy sector. Earnings growth has been led by the Financial Services and Consumer Discretionary sectors, where we would look to be putting monies to work on behalf of client, along with the technology sector, once the summer volatility subsides and we get a clearer direction from the US Federal Reserve regarding interest rates in September.
This is certainly not a time to be chasing the fallen angels so to speak, simply because they used to have much higher prices, companies like Teck Resources or Encana come to mind that we remain neutral on and would continue to avoid. This is the time to review where we see improving economic data relative to expectations, where we see improving credit data and household formations. In addition to the improved macro reasoning, the Financial Services, Consumer Discretionary and Information technology sectors are also demonstrating solid earnings, valuations and relative performance, thus these are the places where we will look to add value within client portfolios over the coming months.
Last week we spoke to the Bank of Canada’s outlook for the Canadian economy on the whole, and this week we thought it would be beneficial to look at just our provincial data, as British Columbia is doing quite well actually. In a recent note BC’s Central 1 Credit Union commented that the provincial economy was in a period of transition last year and was expected to shift upward in 2015 where they forecasted 2.4% economic growth for British Columbia, with a further acceleration expected for 2016.
In a note to clients, RBC economist Laura Cooper echoed these comments, writing that that our economy is on an impressive upswing which is expected to result in British Columbia posting the strongest GDP growth for 2015 versus its provincial peers. With RBC now forecasting real GDP growth in our province to be a solid 3.0% for this year and increasingly slightly next year to 3.1%, BC should easily exceed the Bank of Canada’s national growth forecasts of 1.1% and 2.3% respectively.
Economic prospects for our province remain bright for further gains in export-related sectors with the US economy poised to bounce back after a sluggish first half of the year. Exposure to growing export markets along with the weaker Canadian dollar buttressed a respectable performance in international exports so far this year. Rising US housing construction data has also driven lumber shipments south of the border higher, along with additional demand for the commodity emanating from China and Japan.
With respect to Liquefied Natural Gas, there was positive news recently from our government’s signing of a development deal with a large LNG proponent. Although the final investment decision has yet to be made, we continue to believe that these projects will move ahead and that preliminary work will begin towards their construction later this year and into next year, further boosting our provincial economy.
Periodically we utilize the second page of our market commentary to mention something that is going on around town. This week, since it is finally raining (which we so desperately need) we thought we would mention a couple of indoor activities to partake in.
Vancouver Whitecaps versus the San Jose Earthquake. While you are their take in the BC Sports Hall of Fame and Museum.
H.R. MacMillan Space Centre
For the Mission Impossible movie fan, the latest installment in the series “Rogue Nation” comes out this weekend, however if you are looking for a movie for the kid in all of us “Minions” is still in theatres as well.
This weekend is also the start of the Celebration of Lights Fireworks, with China leading off Saturday at 10pm. If you do plan to take in the fireworks don’t forget to get there early as upwards of 300,000 people are expected to descend on English Bay.
Whatever you decide to do this weekend, have a great time.
We never forget that working for our clients is an expression of your trust, and we promise to always uphold that trust. Thank you.
As always, we welcome your feedback.
Have a great weekend.
The Dekker Hewett Group