By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: April 26, 2019

Apr 26, 2019 | 3:02 PM

Big Picture

Markets Hit Record Highs on Tuesday; Bank of Canada Lowers Forecast

The S&P 500 and Nasdaq had their highest closings on record Tuesday, as positive profit reports for Q1 pushed major U.S. indexes to new all-time highs. The reports add to a much-improved outlook for corporate earnings. With more than 100 S&P 500 companies having reported results by Tuesday, almost 80% have beaten analysts’ profit estimates. Also riding high on Tuesday was the TSX, which hit another record close, thanks to gains in the energy sector, which has been buoyed by rising oil prices. So far it’s been a strong week for oil, as prices surged Monday to their highest level since late October after the Trump Administration announced that it was ending waivers for importing Iranian oil, a move that should tighten global crude supplies.

On Monday, Brent crude rose more than 3% a barrel, settling just above the $74 mark and closing Thursday at $74.35. Despite energy sector strength, Canada’s main stock index surrendered 83 points on Wednesday, after the Bank of Canada held interest rates steady in light of tepid growth. As expected, the BoC left its key interest rate unchanged at 1.75%. Noting weak business activity at home, BoC Governor Stephen Poloz delivered a downbeat assessment of the Canadian economy, forecasting an anemic 1.2% growth for 2019, down from January’s estimate of 1.7%. The Canadian dollar declined sharply following the announcement, slipping below 74 cents, the lowest level against the greenback in nearly four months.

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U.S. markets were also down Wednesday in light of some mixed earnings reports and data showing a sharp slowdown in Australian inflation and deteriorating confidence numbers for German business.

Investors will be eagerly awaiting data on U.S. growth Friday. Economists surveyed by The Wall Street Journal have estimated Q1 GDP growth to come in at 2.5% annualized, which would be the economy’s strongest Q1 performance since 2015.

Markets

S&P, Nasdaq Close Higher; TSX, Dow Slightly Off

For the four days covered in this report, the Dow shed 98 points to close at 26,462, the S&P 500 climbed 21 points to settle at 2,926, while the tech-heavy Nasdaq added 121 points to close at 8,119. In Canada, the TSX declined 37 points to end at 16,576.

Equities/Strategy

Equities

In uncertain times, U.S. stocks prove hard to beat. Trade frictions and Brexit have dampened the appeal of international stocks and driven demand for U.S. equities. A strong U.S. dollar and the related capital flight from emerging markets have likely benefitted U.S. stocks, too. On a price-to-earnings multiple basis, U.S. equities currently trade at a slight premium to their global peers, but they are also less levered and more capital efficient. Approximately 40% of constituents in the S&P 500 have reported so far. Most issuers have beaten consensus estimates. On average, issuers have beaten top line consensus estimates by 0.4% and bottom line estimates by 5%. While YOY earnings growth comparisons should become easier in the second half of the year, we believe corporate profitability could be challenged by rising operating and financing costs as inflation picks up and interest rates rise.

(Bill Curry)

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