By Scotia Wealth Management - The Zukiwsky Group (Sponsored)

Market Watch – Feb. 15, 2019

Feb 15, 2019 | 11:04 AM

Big Picture 

Markets Looking for Positive Signs From U.S.-China Trade Negotiations 

North American markets continued to struggle for sustained momentum this week as clear signs of trade progress between the U.S. and China had yet to materialize by Thursday’s close. On Monday, the S&P 500 was flat, and the Dow was down more than 50 points, as trade tensions simmered ahead of another round of negotiations between U.S. and Chinese officials. On Tuesday, however, the Dow surged more than 370 points over renewed optimism that negotiators were making progress, along with news that U.S. lawmakers had forged an agreement in principle to avoid another partial government shutdown. In Canada, the TSX climbed 73 points Tuesday, as energy shares rose amid a surge in oil prices, thanks in part to OPEC cutting production sharply in January. 

On Thursday, U.S. stocks opened lower after news that December retail sales had tumbled a seasonally adjusted 1.2%, their fastest pace of decline since 2009. Economists and analysts had expected sales to increase 0.1%. Although U.S. markets were largely mixed on Thursday, oil rose for a third day to reach its highest level in 2019, as financial markets remained optimistic over potential trade progress. Crude prices have climbed about 20% this year, as fears of oversupply continue to diminish. While economic data from the eurozone continues to show signs of slowing growth, China’s exports surged a surprising 9.1% from a year earlier in January, reversing December’s losses. Analysts will be eagerly awaiting February’s numbers to see if January was an anomaly. 

Finally, the Q4 earnings season is winding to a close, with roughly 70% of S&P 500 companies topping expectations. However, analysts are currently forecasting a 0.3% decline to Q1 profits, which would be the first loss since Q2 2016. 

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Markets

Trade Optimism Lifts North American Markets 

For the four days covered in this report, the Dow added 333 points to close at 25,439, the S&P 500 rose 38 points to settle at 2,746, while the tech-heavy Nasdaq climbed 129 points to close at 7,427. In Canada, the TSX climbed 63 points to end at 15,696. 

Equities/Strategy 

Equities continue to track higher on renewed investor optimism as central banks pause and economic data remains mostly positive. An increasingly dovish tone from global central banks has restored some of the investor risk appetite that dissipated amid volatile financial market conditions during the fourth quarter of 2018. Combined with modest, albeit slowing, U.S. earnings growth, we believe risk assets could potentially extend their gains as we enter the final stages of the current economic cycle. During 2019, we expect financial markets to exhibit periods of heightened volatility, spurred by possible developments on any number of geopolitical fronts, including U.S.-China trade relations and Brexit. We continue to expect that U.S. equity markets will outperform their global counterparts and recommend neutral equity exposure (relative to our strategic asset allocation model) comprising high-quality issuers. 

(Bill Curry)

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