Jordan Wealth Management Group - ScotiaMcLeod Truro

Canada growth estimates up

Economists are boosting forecasts for Canada’s economic growth after a string of stronger-than-expected reports, calling for 4.6% growth (on an annualized basis) in the first quarter, a full percentage higher than previous estimates, based on strength in manufacturing and wholesale trade as well as retail sales. The number of Canadians collecting Employment Insurance benefits

and the number of new claims declined in January, signs that the labour market is beginning to heal. In the U.S., new claims for unemployment benefits posted a bigger drop than expected last week, but the Federal Reserve says the economy is not recovering at a pace strong enough to persuade companies to ramp up hiring. 

The U.S. passed a landmark healthcare reform bill that expands insurance coverage to 32 million Americans and imposes new regulations like requiring insurance companies to cover patients with pre-existing medical conditions. Financial markets seemed to take the news in stride, even as companies warned it would affect profits. Deere & Co. and Caterpillar said that a new tax on employers’ drug plan subsidies will cost them $150- and $100-million, respectively. Reuters predicts brand-name drug makers, device makers and hospitals will be winners, and health insurers and generic drug makers will lose under the new plan. Ireland’s economy contracted 5% in the final quarter of 2009, and 7.1% for the year, its largest annual decline on record.

Markets

Momentum stalls on U.S. debt worries

North American markets moved higher as U.S. jobless data improved and the Federal Reserve reiterated the need for low interest rates, but stalled Thursday after a disappointing Treasury auction underlined concern that the appetite for U.S. government debt could weaken given the high budget deficit. FNX and Quadra will merge to become a leading force among Canada’s mid-sized base-metal companies, with market capitalization of $3.5-billion. Lululemon revenue jumped 54.5% in the quarter ended January 31, with profit nearly triple that of a year ago at $29-million, up from $11-million.

Starbucks announced it will issue its first dividend and approved the buyback of 15 million shares, signs that its ambitious turnaround effort has taken hold. General Electric will invest €340-million ($460-million) in the offshore wind turbine industry in Europe, capitalizing on the region’s ambitious and binding targets to cut greenhouse gas emissions and increase renewables in the energy mix. The U.K. alone would need 6,400 turbines over the next decade to meet its targets. For the first time ever, Canadians are spending more time online than watching television – 18 hours versus 17 hours per week.

Our recommendation

Adopt a more active investment strategy – trade around core holdings

Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, says: “We remain confident in the sustainability of the economic recovery that is underway, but much of the growth forecast in 2010 is largely priced-in to equity valuations and it should be expected that there will be some bumps along the path to growth.”

• Fixed income. Anthony Mentor, Associate, Portfolio Advisory Group, highlights the following recommendations: “Term Call – below benchmark duration; overweight cash. Sector Call – underweight Canada, 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: “Although we are projecting further 7%-10% equity upside (total return) as confidence in the global recovery solidifies, the equity risk-reward profile is no longer as compelling as it was at the start of 2009.”

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