Weekly Newsletter

Market Watch

The big picture
PM strikes optimistic tone

Prime Minister Stephen Harper struck an optimistic tone Tuesday with his state-of-the nation speech on the recession. “Canada was the last advanced country to fall into this recession,” he said. “We will come out of this faster than anyone and stronger than ever.” Meanwhile, Statistics Canada reported on Friday that Canada lost 82,600 jobs in February, sending the unemployment rate up to 7.7 percent.

In London, a £260-billion deal resulted in the nationalization of Britain’s third-largest bank, Lloyds Banking Group PLC. As the majority stakeholder, the British government will insure more than $470-billion in assets on condition that Lloyds increases lending – primarily to businesses – by £28-billion over the next two years.

Earlier this week, U.S. Federal Reserve (the Fed) Chairman Bernanke stated governments should continue to intervene in the economy even after markets rebound. Chairman Bernanke will be appearing on CBS’s 60 Minutes this Sunday (March 15th) to discuss the recession and the Fed’s response.

The markets
Markets somewhat optimistic – deals getting done, U.S. financials making money

Among the major announcements this week were reports that both Citigroup and Bank of America were profitable in January and February, the release of stronger-than-expected retail sales data, word that GM will not require a $2 billion government loan it had previously requested, and news that a cut in GE’s credit rating was not as deep as expected. The Dow Jones Industrial Average and TSX index both gained about 9% in just three days—the largest gains since November 2008.

Weeks after Pfizer announced its $68 billion bid for Wyeth, further consolidation is taking place in the pharmaceutical industry. Merck & Co has announced a $41.1 billion merger with Schering-Plough Corp., giving the struggling drug firm access to key new businesses, a pipeline of products, and the chance to further cut costs and eliminate jobs. In addition, Thursday saw Swiss drug maker Roche clinch a $46.8 billion deal for the 44 percent of the U.S. biotech group Genentech it didn’t already own for. Roche's initial bid was rejected last year and the Basel-based company turned hostile after several months, during which the financial crisis raised doubts about financing and Genentech's shares fell below the offer price.

Our recommendation
Consider moving off the sidelines

• Equities. Economic statistics are anticipated to be at their worst over the next several months and Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group suggests that in response to any negative market reactions investors should be selectively building equity positions in quality companies to position portfolios for the next cycle.

• Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, says high quality corporate bonds, such as Canadian banks and insurance companies, continue to offer attractive yields relative to government issues. Although credit spreads have tightened significantly, they still remain wide, and we recommend investors following the laddered portfolio process add exposure to these sectors when rolling maturities at this time.

• Portfolio strategy. With volatility still at record highs, it’s important to review the impact on your portfolio allocations and ensure that your holdings remain appropriate for your goals and risk tolerance.






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