May 24, 2008

I am ScotiaMcLeod Wealth Advisor Jeff Wareham, with your Beyond Funds market Weekly Market summary



The performance gap between Canadian and global markets remained wide this week, as investors continued to seek comfort in the performance of Energy and Material stocks.



US stocks remained in correction territory, albeit well off their 2008 lows, while the Canadian market set a new all time high, and broke through the 15000 level, before selling off mid week.



There was no stopping oil, as the latest market darling broke through both 130 and 135 dollars per barrel during the week.



The canadian dollar followed suit, gaining a couple of cents against the greenback, ending at 101.04 US.



Toronto’s TSX closed the week at 14723, while the Dow limped into the memorial day weekend at 12479, and the Nasdaq stumbled to 2444. the S&P closed out the week at 1375, down 3.5% on the week.



Oil touched 135 earlier yesterday, but ended the week at 131.79.



Gold, and the Canadian dollar, gained on the US greenback, largely because it appears that we have reached the bottom of the current interest rate easing cycle in the US, with apparently pretty mixed results.



The strength of the Canadian dollar was global this week, as it gained significantly on the Euro as well…largely on energy and material strength.



Speaking of energy, Scotia Economics released its Commodities Outlook this week…it is pretty detailed, so I will touch on the highlights, and post the details on my blog on the AM 980 web site.



On the oil side, our analysts have increased their price forecasts in both 2008 and 2009…not great news for those of us that drive, or heat our homes, but very good for those who are invested in the energy sector, as most experts still agree that most energy companies are not yet priced for the impact of elevated energy prices.



Scotia Economics upped their forecast price for 2008 to 140 US…and they note that both oil and natural gas are likely to continue their price climb due to growing demand, subsidies in many Asian economies, and unexpectedly low growth of supplies outside of the OPEC countries.



Conversely, many other commodity price forecasts from our economic outlook are significantly lower than their current price…this includes pulp and paper products, zinc, nickel, and copper…although uranium, a substitute in the energy market, are seen going higher..



The slowing global economy should curb some commodity demand. This is great if you are worried about inflation, but not so if you are heavily exposed to materials or commodities in your portfolio…this may not seem important, but many Canadian equity funds have massive commodity exposure…and this includes the very popular category of index funds, as more than half of the Canadian index is now represented by energy and materials stock. As of a few days ago, Scotia’s portfolio advisory group noted that, if you add in financials, 75% of the index is covered by three key sectors…meaning many other sectors, like conglomerates, consumer products, healthcare, utilities, manufacturing, and even transport and technology are badly under represented by our index…meaning investors need to look elsewhere to cover these vital parts of the economy.



Fact is, if the economy does slow globally, and it appears it is, materials, energy, and financials may take their lumps…meaning investors focused in Canada may have real problems with return.



It is always good to diversify…right now, I believe it is critical.