After the past four months of negativity, October is proving to be a great month for the broader North American markets. While the U.S. markets have fared better than the Toronto Stock Exchange due to the underperformance of our materials sector, overall investors have fared well on both sides of the border.
The markets this past week are looking toward a final resolution to the European crisis. The hope is that a shock and awe approach will be announced by the European Union when EU leaders meet on Wednesday to finalize plans discussed this past weekend.
I look for the markets to be very volatile with low trading volumes until something is finally announced. I believe the European leaders will resolve the issues at hand but how long it will take is the question, and investors seem to be on the sidelines until some resolution is announced. Ideally, if they could satisfy all the naysayers this week, that would be the best scenario. In my opinion, there is no telling how high the equity markets could rally once the European crisis is put to rest.
Once European issues are properly dealt with, our markets should focus on what is happening in Canada and in the U.S. and how they plan on growing their economies. Recently, President Barack Obama’s jobs bill was defeated as anticipated and now parts of the bill are being discussed to see what is possible to pass through the government. In Canada, Prime Minister Stephen Harper has announced that jobs creation will also be his focus moving forward.
Central banks in Canada and in the U.S. remain accommodative with their low interest rate policies and the Federal Reserve is contemplating more stimulus measures should the economy get worse. There is a saying that “you can’t fight the Fed.” In my opinion, you shouldn’t fight the Fed or the government. Everything is still in full stimulus mode and once the European issues are perceived to be remedied, the markets in North America could really take off.
The earnings season in the U.S. has gotten off to another great start. Seventy per cent of companies reported have beaten expectations, which is above the historical average. Many analysts are now saying that the fourth quarter could also be a great one for profits as well. The consumer in the U.S. has shown no signs of letting up, thus the holiday season could be a good one for retailers and the U.S. economy in general. Currently in the United States, manufacturing numbers are looking better, consumer confidence is higher and there have even been some positive signs in the housing market for the first time in a long while. All this positive U.S. data as of late, in my opinion, clearly shows that a recession is no longer on the table, which the market had priced in over the past four months. Thus I believe the stock market in the U.S. should continue to move higher to reflect a slow growth economy and not an economy going into recession.
For investors that are struggling with what they should be doing today, I recommend you consider buying into this market. I would look to some of the more beaten down names, companies that are leaders in their field, “best in class” companies. I feel that it is only a matter of time before the global macroeconomic issues begin to resolve themselves and we start to see global growth again.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of DWM Securities Inc. The views expressed are those of the author alone and are not necessarily those of DWM Securities Inc.