Outlook 2016 - Canaccord's Top Two Strategists weigh in
Erica Stephenson - Jan 08, 2016
World growth stuck at ~3% GDP. In a low-growth world, growth momentum matters more than levels. Contrary to 2015, the global economy is entering 2016 with leading indicators pointing to a mild recovery in momentum. Downside risks are well understood
The Quantative Stratigist, by Martin Roberge
World growth stuck at ~3% GDP. In a low-growth world, growth momentum matters more than levels. Contrary to 2015, the global economy is entering 2016 with leading indicators pointing to a mild recovery in momentum. Downside risks are well understood but upside risks may emerge as recent growth concerns force central banks to support monetary reflation with fiscal stimuli.
The US economy; a greater risk than China? While Chinese authorities have deployed fiscal backstops, the Fed is caught in a negative feedback loop with the dollar whose appreciation is capping growth around 2%. This vicious circle can only be broken through less hawkish rhetoric. We expect the Fed to blink this spring as transitory factors holding down inflation fail to dissipate.
Canada is a stalled engine <2% GDP. The BoC is sidelined until the weak CDN$ and Liberals’ infrastructure spending binge stimulate the economy and offset headwinds from lower oil prices. We believe this is a 2017 story, meaning another year of heated housing-market conditions in 2016.
US$ soft-landing and temporary reprieve for CDN$. We project a year-end target of 76 cents for the CDN$. The US$ weakens after the first Fed hike. Softer US growth and gradual Fed hikes should beget US$ depreciation. The CDN$ is oversold and history shows that it can rebound up to six months before a bottom in oil prices. Canadians should now hedge foreign currency exposure.
US Portfolio Strategy, by Tony Dwyer
Indicators entering buy zone
There is very little to say about the current state of the market that looks positive, especially given the sharply lower indication in S&P 500 Futures. Commodities remain under heavy pressure, the Middle East is a powder keg, North Korea claims to have a hydrogen bomb, China is devaluing its currency and is limit down overnight, most global and domestic economic indicators appear to be losing momentum, the Fed has begun raising rates, and equities are under heavy pressure to begin the year.
Early-year weakness drags indicators into buy territory. Since early December, we have been waiting to get more aggressive once the Fed raised rates and our key tactical indicators get oversold enough to indicate the close proximity to an identifiable low. We have found that during periods of such high anxiety – even in the context of our positive core thesis – we must wait for the equity market to get “oversold enough” using our four key tactical indicators to warrant a more aggressive stance. These indicators are not meant to pinpoint an exact low, but are meant to highlight a time surrounding an important low, as highlighted in Tough time to ask for a bounce. While our indicators are not as extreme as they can become (such as August 2015), they are getting to the point that warrants a more aggressive tactical position despite the prospect of even more weakness.
Let’s take a look at what our signals are, what is an “oversold enough” condition that warrants a more positive tactical view...