Peter Brieger, chairman and managing director, GlobeInvest Capital Management

FOCUS: North American Large Caps

Market outlook:

In the very short-term, the S&P 500 is overbought as measured by the Investor Intelligence Bull/Bear Ratio of 4.01 as compared to a normal upper valuation of 3.0. While this indicates the potential for a correction, a correction does not necessarily follow. Markets can work off that over-bought position by moving sideways until the B/B ratio recedes to less than 3.0. Also, if one looks at the TSX and S&P 500 estimated 12 month forward price earnings ratios, (to February 2016) at 16.9 and 17 .6 respectively, they are moving higher towards an 18 PER, which would definitely be a red warning flag for us. However, if the current 2016 estimated come to pass the respective 2016 PER decline to 13.8 and 16.2 (Yardeni Research) or 15.5 (the consensus).

So at this point, excluding the appearance of a swan regardless of whether “50 Shades of Gray” or just plain black, the main clouds in the sky are geo-political. For example: a) further misadventures by Putin in the Ukraine, thus triggering further military action because of a more aggressive NATO response; b) further ISIS sponsored activities particularly in North America; c) in spite of everyone’s best efforts Greece final walks. At this point, possibilities “a” & “b” are the most worrisome. We put a low probability on “c.”

From a U.S. domestic fundamental perspective, a report in the Wall Street Journal points out that “sub-prime lending is at the highest level since the 2008/09 financial crisis, driven by a boom in car lending and a new crop of companies extending credit. Almost four out of ten loans for autos, credit cards and personal borrowing in the U.S. went to sub-prime borrowers during the first eleven months of 2014”. Should these lenders put a brake on their activities it would not be helpful to auto sales, which have been one of the staples of this recovery.

However, happily in my view, the expected good news going forward more than makes up for the potential negative mentioned above. They are:

· A better outlook for consumers as past seven year bans on credit are lifted, thus improving the ability to access credit for an estimated 10 percent of households (data in these bullet points courtesy fundstrat – February 2015);

· An easing of bank lending standards which improve the outlook for another 20 percent of households;

· A sharp decline in mortgage delinquencies and in consumers’ Debt Service Ratio from the 11.3 percent - 13.0 percent at the top of the cycle to 9.9 percent today;

· Stronger labor markets, the benefits from lower gasoline prices and pent-up demand;

· A potential pick-up in U.S. corporate capital spending as plant capacity approaches 80.0 percent.

In conclusion, while markets are currently over-bought and without ruling out the potential for a 5 percent to 10 percent correction, I remain very bullish looking out for the next two to three years.

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