By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: April 5, 2019

Apr 5, 2019 | 5:30 PM

Big Picture

Stocks Get Early Boost Over Strong Chinese Data, Trade Optimism

Global stocks surged on Monday, following their best quarterly performance since 2010, as investors rallied over strong factory data from China and the U.S., along with renewed optimism on the U.S.-China trade front. Data showed China’s manufacturing sector expanded for the first time in four months as Beijing’s stimulus package looked like it may finally be making an impact. The news out of the U.S. was also good: manufacturing activity improved in March, while construction spending for February was up, too. Monday’s encouraging U.S. and Chinese data rocked the U.S. bond market, triggering its biggest one-day sell-off in three months. While U.S. equity markets were flat mid-week, the Dow climbed Thursday as a summit between Trump and Xi Jinping looked likely.

In Canada, the picture was a bit different as the manufacturing sector expanded in March at the slowest pace in two and a half years. BoC Governor Stephen Poloz said recent data suggest the slowdown will be temporary. On Tuesday, the loonie weakened against the greenback, retreating from an 11-day high on Monday as weak housing data from Vancouver revealed that home sales dropped more than 30% in March. Also on Tuesday, oil prices hit their highest level so far for 2019, with Brent crude approaching the $70-a-barrel mark, before retreating on Wednesday after an unexpected rise in inventories.

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Meanwhile news out of Europe was mixed. With a fourth straight day of gains, European stocks on Wednesday closed at an eightmonth high. However, the news out of Germany on Thursday showed further indications of an accelerating slowdown, as manufacturing orders dropped sharply due to dwindling demand from outside the eurozone.

This Friday, investors will be parsing the monthly U.S. payrolls report for confirmation of growth. Anything below 100,000 jobs added would likely renew fears that employers’ confidence is waning in the U.S. economy.

Markets

N.A. Markets Relatively Calm After Strong Monday

For the four days covered in this report, the Dow jumped 456 points to close at 26,385, the S&P 500 rose 45 points to settle at 2,879, while the tech-heavy Nasdaq added 163 points to close at 7,892. In Canada, the TSX was up 209 points to end at 16,311.

Equities/Strategy

Equities

Buyer beware! Emerging markets (EM) underperform significantly during periods of stress – Despite having outperformed the MSCI World Index (which contains only developed market countries) since its inception in 1987, the MSCI Emerging Markets Index has exhibited far greater return dispersion. During periods of economic instability, EM assets tend to be among the hardest hit as a result of EM countries’ more fragile economies and more pronounced risk profiles. Given the current state of the business cycle, we remain averse to substantial EM exposure and prefer the superior risk-adjusted return opportunities available in developed markets.

(Bill Curry)

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