Weekly Newsletter

Market Watch



The big picture
Auto sales up as GM plant closes



Canadian sales of new motor vehicles rose 6.3% in March, the largest monthly gain since January 2008. Statistics Canada attributes the increase mainly to higher truck sales, which were up 11%, more than offsetting the decline in sales in February. Ironically, this news came a day before thousands of workers and family members gathered to witness the end of an era, as the last truck rolled out of an Oshawa, Ontario General Motors plant that first opened in 1965.



U.S. Treasury Secretary Timothy Geithner said Wednesday that the financial system is “starting to heal” as a result of massive efforts to rescue banks and steady the housing market. In a speech to community bankers, Geithner added that “Concern about systemic risk has diminished and overall lending conditions have started to improve.” As a sign that a recovery may be underway, four large U.S. banks that fared well under recent government “stress tests” announced this week that they will issue new common shares and use the proceeds to start repaying government bailout funds.



European Central Bank President Jean-Claude Trichet expressed optimism at a news conference on Monday, saying that we are “around the inflection point” in the current economic cycle. Bolstering that view, new data from the Organisation for Economic Co-operation and Development showed that some of the world’s leading economies may be on the path to recovery.



The markets

Consolidation continues



Equity markets ended the week lower - capping a two month rally. Weaker US retail sales and employment data were catalysts for profit taking. Few were surprised that the market pulled back slightly—measured from their March lows, the S&P 500 was up a remarkable 39% and the TSX 37%. The gains have been supported by a steady stream of improving economic news and, in Canada, stronger energy prices, with oil prices pushing towards $60 per barrel.



Consolidation continues to be an important market theme. This week, R.R. Donnelley & Sons Co. stated that it wrote to rival printer Quebecor World Inc. expressing interest in acquiring the bankrupt company for $1.35 billion, saying it can offer creditors better terms than a proposed reorganization plan as part of bankruptcy proceedings in the U.S. and Canada.



Our recommendation
Look for opportunity in market dips



· 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.