Market Call:

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Michele Robitaille, Managing Director and Portfolio Manager, Guardian Capital

FOCUS: High-yielding equities and REITs

Market outlook:

We remain somewhat cautious on the near-term outlook for the Canadian equity market, driven by increased geopolitical risks, weak energy markets, and soft global growth.

Although we believe the continued recovery in the U.S. economy will be supportive of Canadian economic growth and stock market returns, macro and geopolitical risks increased into the end of last year and remain elevated. Growth throughout Europe continues to stagnate, while uncertainty regarding Greece’s future within the EU has resurfaced. Chinese data points remain soft, while serious questions about the state of Russia’s economy have intensified due to on-going sanctions over the Ukraine and low oil prices.

Tensions in the Middle East have once again escalated with unrest between Yemen and Saudi Arabia. These factors represent potential headwinds to global economic stability and to our outlook. Relative to Europe and Asia, the United States remains the single bright spot in the global economy with solid economic data, albeit a bit softer than expected in the first quarter. We expect the data to remain largely positive through 2015, led by a stronger U.S. consumer driven by continued employment gains and lower oil prices.

Although revenue and earnings strengthened through the back half of 2014, we do not expect that momentum to continue into 2015 given the strong rise in the US dollar and drop in oil prices. In our view, we need to see an acceleration in earnings and revenue growth to move the markets higher.

The timing of the Fed’s first rate hike remains the subject of continuous debate. Given the data dependent nature of the decision and the relative strength of recent data points, we expect the Fed will begin to moderately raise the Fed Funds rate in mid-to-late 2015. The Fed’s ability to balance the gradual tapering of monetary stimulus without interrupting the U.S. recovery or damaging investor sentiment will be a key driver of the U.S. economy and equity markets.

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