May in review

As of the end of day on May 31, the U.S. S&P500 returned 1.2% (YTD 7.8%) and the Canadian S&P/TSX composite returned -1.5% (YTD 0.6%). Oil (WTI spot/bbl.) is down 2.8% trading at $48.58USD/bbl. U.S. dollar depreciated 1.8% against the Canadian loonie and 2.2% against Euro. The price of gold ended the month at $1,267 up 2.9%, copper down 3%.

 

Tactical Shift: trimming U.S. Equity exposure and overweight European Equity

 

We have downgraded U.S. to market perform as a result of two factors: strong U.S. market performance and higher relative valuation.  It is worth noting the underlying economy in the U.S. is healthy and there are no signs of recession judging from the six major economic indicators we follow to assess the health of the economy.

 

U.S. stocks need time to digest outsized gains

1. The market has surged 20% since last summer and over 30% since Feb 2016
2. We expect more muted returns in the next 12 month

 

Some tech companies have performed even better:

High growth “Fang” stocks: Facebook, Amazon, Netflix and Google – Alphabet

 

 

Making the case for investing in Continental Europe

 

The decision to pivot into continental Europe is two-fold: first, the European earnings momentum is fast paced and broad, excluding U.K. due to the Brexit uncertainties, Germany, France, Italy and Spain have all seen broad economic recoveries; second is a relative valuation call, the Euro area is trading at a deeper discount compare to the U.S. in the context of two indices’ historical relationship.

 

1. European earnings momentum is fast-paced and broad
2. Mid-teens growth is possible for this full year

 

 

For specific recommendations to gain exposure to Continental Europe or to discuss asset allocation for your investment portfolio, please reach out to me directly for individual tailored investment advice.

 

 

 

Rita Li, CFA, MBA, CFP

Rita is a seasoned investment professional with experience working with different asset classes at top investment firms in Canada and abroad.  Rita is a Chartered Financial Analyst CFA® and Certified Financial Planner CFP®. She works with a multi-disciplined team to provide comprehensive wealth management services to High Net Worth families.

 

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Source: RBC Wealth Management. Bloomberg; daily data through 5/24/17

Returns are as of end of day May 31, 2017 unless otherwise specified