Weekly Newsletter

Market Watch



The big picture

Cautious optimism – rate of economic contraction seen slowing


On Tuesday, U.S. Federal Reserve (the Fed) Chairman Ben Bernanke expressed confidence that the pace of economic decline will slow in the coming months. The Fed backed up this statement with a report detailing weak economic activity for March and early April, and predicting further economic contraction, albeit at a slower pace. To help alleviate some investor concerns, the Obama administration announced plans to disclose the results of “stress tests” that were applied recently to 19 top U.S. banks.



The Bank of Canada’s (BoC’s) quarterly Business Outlook Survey echoed the Fed’s cautious optimism, reporting that while Canadian business leaders see continued economic weakness, they are now slightly less pessimistic than three months ago. The BoC will make its next interest rate announcement on April 21.



U.S. consumer prices unexpectedly slid into deflationary territory last month, marking their first full-year decline in more than half a century and underscoring the continuing weakness of the U.S. economy. On Friday, Statistics Canada reported that the annual inflation rate dipped to 1.2 per cent in March, almost completely reversing the previous month's unexpected jump. Meanwhile, European central bankers publicly hinted at the need for further interest rate cuts in order to support prices.



The markets

Earnings surprise on the upside



Goldman Sachs reported a surprising 20% jump in profits on Monday, and said it will use proceeds from a $5-billion stock sale to help repay the government bailout money it received last fall. Intel also reported higher-than-expected earnings, but its shares slipped 5% after the world’s leading chipmaker refused to provide guidance on future earnings expectations. Meanwhile, better-than-forecast results out of Citigroup and General Electric were announced on Friday to a mixed response by investors.



Our recommendation
Be selective in building equity portfolios

· Equities. Increasing evidence suggests the market may be approaching fair value and is vulnerable to a pullback. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group believes the current strength in equities is merely a rally in the context of an ongoing bear market as opposed to the beginning of the next bull market. Investors should take profits in long trading positions or holdings that have become overvalued or do not represent long term, core holdings. In the event of an inevitable pull-back, continue to accumulate equity positions in anticipation of the next bull market for stocks



· 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 that 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.















Jeff Wareham
Wealth Advisor

ScotiaMcLeod
148 Fullarton Street,
Suite 1801
London, ON
N6A 5P3

Tel: (519) 660-3260
Toll Free: (800) 265-1242
Fax: (519) 660-3208
Email Jeff
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Greg Holland
Tel: (519) 660-3239
Email Greg

Ann Martin
Tel: (519) 660-3260
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