July in Review

 

Q2 2017 S&P500 earnings likely grew 11-12%

RBC forecasts earnings growth of 8.4% over the next 12 months (vs. consensus at 11%). With the NY Fed’s probability of a recession at less than 7%, higher multiples should bring the return to roughly 1% per month over the next year.

 

Greater Overseas Strength

Economic projections point to a pickup in nominal GDP on a global basis.  Give their greater economic sensitivity, non-U.S. companies are forecast to grow faster than those in the U.S. for Q2 and full year 2017.

 

 

Bank of Canada (BoC) policy shift spurred a surge in the loonie

 

The Canadian dollar currently sits at a nearly 2-year high at US$0.80, following a 9% rally since early May as the market adjusted to an evolving message from the BoC. The market is pricing in a second 25bps rate hike coming from BoC in October.

 

 

The recent sharp move higher in the Canadian dollar reflects a fairly optimistic view of the economy and expectations of meaningful interest rate hikes from the BoC. The unwinding of a significant short position in the Canadian dollar has contributed to the magnitude of the move.

 

Markets are pricing in more hikes in Canada than the U.S. over the next 12 and 24 months. This stands in stark contrast with RBC Capital Markets’ most recent forecast which calls for three rate hikes from the BoC over the next 18 months, but five hikes from the Fed over the same time period. If the RBC Capital Markets view plays out, that would likely result in a weaker Canadian dollar.

 

 

 

 

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.