Market Call:

Charles Lannon, Partner and Head of Global Mandates, Toron AMI International Asset Management

FOCUS: Global Equities

Market outlook:

The outlook for U.S. interest rates, and relatedly the U.S. dollar, have had a major impact on equity markets thus far in 2015. The expectation that the U.S. will raise short term rates later this year or in early 2016 has increased, at the same time that European and Japanese central banks have essentially taken the opposite route, and initiated and accelerated quantitative easing measures. Many Emerging Market and commodity exporting economies (such as Canada’s) have also seen their currency weaken vs. the “greenback” as well.

This has hurt U.S. equities (and particularly the stocks of businesses with significant non-American operations), which have basically been flat year-to-date in local currency terms. However, exporters based in Europe, Japan and elsewhere have benefitted from this same trend, and these stocks have performed strongly. The higher U.S. dollar (in conjunction with the collapse in energy prices) has dampened prospects for S&P 500 profit growth this year, but earnings prospects in 2016 potentially look quite good as the economy continues to stabilize, and stocks benefit from an easy 2015 comparator.

Ultimately, we expect that the continued acceleration of global economic growth will trump any headwinds posed by modestly higher U.S. interest rates.

Top Picks

Capital One Financial (COF.N)
Olympus (7733 JP)
New Flyer Industries (NFI.TO)

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