Good morning all and welcome to May. Yes, tax season is finally over and summer is on the way.
Today many markets are closed for May Day celebrations, which in Europe have turned into May Day protests on austerity.
The China Purchasing Managers Index dropped from 50.9 in March to 50.6 in April which still indicates growth however at a slightly lesser pace.
Tomorrow, Mario Draghi will provide us with some insight into how the Euro zone is fairing and provide forecasts for the balance of the year. It is widely rumoured that the ECB will reduce rates and or look to some other stimulative measures to help the Euro zone recover.
Today UK Factory Orders saw a nice rise in April to 49.8 vs. 48.6 in March which shows the economy is almost in the growth channel (greater than 50.0 is the benchmark) and this surprising upswing for the month has the UK markets rallying as the balance of the region is closed today.
In the US the ADP Private Payroll numbers for April were released this morning with the number coming at 119000 new jobs created vs. estimates of 150000. The negative number has caused futures to sell off in the US from a slightly positive bias earlier this morning. This number in most cases sets up the Monthly Non-Farm Payrolls which are due out on Friday morning with estimates of 145000.
Gold is off $7.00 this morning at 1465, oil is off more than a $1.50 at 91.95 and the Loonie is flat at 99.31.
Lastly this morning, we are now in the “Sell in May and go away” month however our quant analyst Martin Roberge would suggest that this may not be the case this year. He states,
- · The “Sell in May and Go Away” season has now arrived. But an important dilemma for investors this year is the historical script showing that S&P 500 returns above 10% through April usually hold until the end of the year.
- · Thus, even though markets are likely to maintain their uptrend, volatility should increase from here; hence, the need for investors not to chase recent winners but look for laggards. We decided to resist cutting our equity exposure because beneath the surface, stocks are pricing in recessionary conditions as suggested by the strong outperformance of defensive stocks this year and the much depressed valuation of resource stocks.
- · We don’t want to sound complacent but as we see next, the investment climate and global economic backdrop are more constructive this year than they were at this time in 2011 and 2012. Moreover, should the ECB cut rates and deliver more, it will add to the probabilities of a second-half recovery, which should normally help cyclical stocks to get out of their funk.
- · This is not spring 2011 and 2012. Key differences are: 1) monetary reflation has gone global and central banks have removed tail risks, 2) leading economic indicators (LEIs) are rising worldwide, 3) growth in Chinese exports and imports is recovering, and 4) the US/global trailing EPS-growth cycle has shifted from deceleration to reacceleration
Some positive but continuing cautious analysis which I am in agreement with. We shall continue to be defensive and adhere to structural allocation models across all mandates going into the summer.
Kenneth A. Dick, BA, CIM, CFP, FCSI
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