2017 Market Outlook

Happy New Year!

Many of the global events of 2016 will be published in the next round of history books, and after such an eventful year, we’re all wondering what’s in store for 2017.

US equities as a whole are no longer cheap, and to see double digit returns out of the S&P 500 in 2017, corporate earnings would have to increase substantially which could only occur if the US economy accelerates its current growth trajectory. While I believe the likelihood for stellar returns out of the broader market is low, the investment environment is stable and should bode well for undervalued stocks and those that will benefit from infrastructure spending, lower corporate taxes and lower government regulation.

The Toronto Stock Exchange is always one that we’re wary about. While it was up some 17% in 2016, many have forgotten its 11% decline during the previous year. In addition, the TSX still hasn’t caught up to its high back in 2014, and if you were invested in the index in early 2008, you barely would have made your money back today. The Canadian index is highly concentrated in resources and financials; when these sectors are in favour the TSX will rally, but fall when the asset classes are shunned by investors.

That said, similar to the situation in the US, opportunities do exist in Canada and particularly for companies that rely on exports given our lower dollar. If OPEC production agreements stay intact, we should continue to see upside in the oil and gas space, and a stronger US dollar will further benefit Canadian producers.

The hot housing market in Canada is a risk to the Canadian economy, but government programs seem to be working somewhat in cooling prices. So long as home prices don’t collapse, although not inexpensive, Canadian financials should do ok when factoring in strong dividend yields.

We continue to head into an era of stock and sector selection rather than blind, macro investing. I believe this to be true for global equities as well. We’ve seen economic divergence between the US and the rest of the world for some time, leaving many European and Emerging Market equities attractively valued.

Having said the above we can’t ignore one important factor. There are massive sums of money still parked in cash and government bonds. As more investors recognize the power of equities, more money will flow into their corresponding markets. Never a dull moment!

Have a prosperous 2017.


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Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO

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