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Fourth Quarter 2013

February 6, 2014 • Print This Article

As 2013 has come to a close and we are now thinking of RRSP and TFSA contributions, here's a quick summary of the markets last year and where we believe markets will go for the year to come.

The Canadian market had a good year, rising 9.6% 1. However, that performance paled in comparison to the market action south of the border. The stable, boring Canadian economy did not produce either the fear that drove down and depressed US equities or the value of the US Dollar, nor has it produced the extended relief rally that occurred in US equity markets last year. If you look at the markets long term, perhaps the S&P and Dow Jones Industrials were playing catch up after 10 years of relative under performance. The Canadian equity market does not appear to be over extended. As the global economy grows there should be increased demand for resources benefiting Canadian producers. Canadian financial companies operate in the global arena and should benefit from growth. The recent weakness of the Canadian dollar, as a result of the slowdown of QE and growing consensus that the US economic growth is now entrenched, should benefit manufacturers and Canadian companies that have US and foreign operations and assets.

At the beginning of 2013, few professionals predicted the remarkable performance of US Equities. Equity valuations were fuelled by artificially low interest rates, continued downward pressure on wages and benefits, recovery in the housing market and robust corporate profits. As interest rates for longer maturity bonds began to back up, due to scaling back of quantitative easing (QE), bond prices fell and investors began to move from the bond market to invest in equities, further adding fuel to the rally. Toward the end of 2013, portfolio managers heavily weighted in cash moved more into equities creating a powerful "Santa Claus Rally". The US equity markets have not had a correction of 10% since May 2012 2. There is concern that a correction in the US markets is overdue. Longer term, US equity indices should move higher.

Looking forward to 2014, we anticipate a constructive year for equities. Moderate global expansion appears to be firming and inflation should remain low. Bond markets may remain under pressure as extraordinary stimulus is gradually removed leading to modestly higher interest rates. Weakness in the $CDN is translated into US returns. For the full year we anticipate higher US markets, but do not anticipate the level of returns reached last year. As always, if we can be of any assistance please don't hesitate to give us a call!

1: from Ndex ROR for TSX300

2: from Dow and S&P500 charts on ThomsonOne

Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.

 

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