Jordan Wealth Management Group - ScotiaMcLeod Truro

Canada growth forecast brightens; Markets stabilize, but Obama remarks linger.

Big picture

Canada growth forecast brightens

The International Monetary Fund gave Canada a vote of confidence, raising its GDP forecast to 2.6% in 2010, up from 2.1%. According to the Conference Board of Canada, Vancouver will lead Canadian cities with 4.5% GDP growth this year, fueled by the Winter Olympics, followed by Toronto with 3.5%. Britain crept out of recession in the fourth quarter of 2009 as GDP rose a paltry 0.1%, well below analysts’ forecasts. Standard & Poor’s threatened Japan with a credit rating cut if the economy stays weak and debt remains sky high. Japan has the largest public debt burden among industrialized countries.

Demand for U.S.-made durable goods rose in December, led by strong orders for metals, machinery and capital equipment. Several industrial giants, including Caterpillar, the world’s largest heavy equipment manufacturer, posted earnings well ahead of Wall Street’s expectations. The Federal Reserve kept interest rates steady as expected and gave a cautiously upbeat view on the economy. In his State of the Union speech, the U.S. president pushed job creation to the top of his agenda to bring down high unemployment, while continuing to press financial and health care reform.

Markets

Markets stabilize, but Obama remarks linger

Stock markets stabilized this week but investors remained skittish after President Obama’s plan to curb risk-taking by financial institutions triggered a three-day global sell-off last week, trimming more than 4% off the S&P 500 and 3% off the TSX.

After months of speculation, Apple unveiled the iPad, a new touch screen tablet-style computer. Apple also launched its own eBook store, which could revolutionize the publishing industry in the same way the iPod revolutionized the music industry.

AT&T quarterly profits surged 25% as the iPhone’s popularity drew 2.7 million new wireless customers. Nokia beat analysts’ estimates, increasing its share of the Smartphone segment to 40%, up from 35% in the previous quarter.

In the auto sector, Toyota shares fell as North American sales and production were halted by a massive safety recall; Ford posted its first full-year profit since 2005; and General Motors will sell Saab to Dutch sports car maker Spyker for US$74-million. DuPont boosted its 2010 outlook as Asian demand jumped 34% last quarter to exceed pre-recession levels. Procter & Gamble saw quarterly sales rise 6% and the Metro chain of grocery stores in Ontario and Quebec posted a 21% jump in profits.

Our recommendation

Dividend income to play a larger role in shareholder returns

• Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, says “a pullback in equities doesn't come as a large surprise as this year's trading activity will be characterized by volatility while global economic data and corporate earnings reports attempt to catch up with and justify market valuations.  We remain confident that markets are fairly valued in the context of an ongoing economic recovery and view any intermittent pullbacks as an opportunity to add equity exposure. ”
• Fixed income. Anthony Mentor, Associate, Portfolio Advisory Group, highlights the following recommendations: “Term Call – below benchmark duration; overweight cash. Sector Call – underweight Canadas, overweight Municipals and Provincials, and Corporates. Currency Call – recent strength in the Canadian dollar means little upside to foreign currency trades. Alternative Strategies – overweight high yield, overweight Emerging Markets Debt, underweight inflation protected bonds.”
• Portfolio strategy. Vincent Delisle, Scotia Capital’s Portfolio Strategist, writes “With earnings and U.S. employment visibility set to improve through 2010, we are sticking to an equity overweight/government bond underweight stance.”