December 2016


December 2016

• On the surface, global equity markets seem to be reacting well to the U.S. election, with the MSCI AC regaining most of the ground it lost immediately after November 8. But the rebound has been anything but broad-based. While U.S. equities are at or near records, unease persists in emerging markets and Europe.

• Republican control of both houses puts Donald Trump in a fairly good position to advance other parts of his pro-growth agenda, including tax cuts for corporations and individuals and reduced environmental and business regulation. In our outlook, however, the U.S. economy is unlikely to get a boost from President Trump’s agenda before the second half of 2017 at the earliest.

• In the meantime, the U.S. stock market still needs to reconcile aggressive earnings expectations with a super-strong dollar that amounts to a drag on the top-line growth of U.S. multinationals (chart).

• The S&P/TSX has so far held its ground in the post-election tumult, but mostly because of its two largest sectors, Financials and Energy. The bottom-up consensus of equity analysts currently sees earnings growth more than twice that of the U.S. over the coming 12 months (22.6% vs. 10.8%).

• At this juncture, until we get to know the actors a little better, we prefer to keep our asset mix unchanged with an above-average weighting in cash. We see little upside in equities through the end of the year as markets adjust to the Federal Reserve, the composition of the new U.S. Congress and political events in Europe.

Stéfane Marion

Chief Economist & Strategist

Matthieu Arseneau

Senior Economist