Canadian consumers keep spending
Despite expectations for a moderation in economic activity in the second quarter of this year, consumer spending actually accelerated in April. The latest data from Statistics Canada revealed a 0.8% increase in retail sales during the month, establishing a new all-time high of $48.6 billion. The advance came in the wake of a 0.5% gain in March and left year-over-year growth at 7.0%. Sales were up in nine of 11 subsectors, representing 71.0% of total retail trade during the month. Growth in sales was also widespread geographically, with seven of 10 provinces, led by Manitoba (+1.9%), showing gains. Looking forward, given the very strong advance in employment during May, a significant reversal in retail spending would appear unlikely.

U.S. housing experiences another hiccup
The recent wave of U.S. housing data for May painted another blurry picture. Housing starts posted a third straight decline during the month, dropping 5.5% in May and capping the worst three-month stretch (-15.2%) since May to July 2010 (-20.5%). Running counter, existing home sales rose 1.1% in May. Reduced inventory levels for existing homes helped propel the median sales price to a new high ($252,800) while simultaneously pushing down the median days a home is on the market (27 days) to a new low. As well, while new-home sales data was heavily revised in the May report, they did rise 2.9% during the month to the second highest total of 2017. Meanwhile, inventories remained steady at 5.3 months’ supply. The broader view suggests that, at least on the demand side, the housing market remains firm.

Oil prices enter bear territory
On June 22, the price of West Texas Intermediate oil briefly broke down to US$42.25 per barrel, marking its lowest level in ten months. The move down also signalled a decline of 22.4% from the recent peak of $54.48 on February 23, 2017. A “bear” market typically refers to a peak to trough decline of at least 20.0%. Recent oil price weakness has proved to be something of a dilemma for central banks. Historically, cheap energy has provided the basis for solid economic growth against a backdrop of subdued inflation. However, many of the world’s major central banks are looking to raise interest rates in an effort to “normalize” their monetary policies. The May OPEC agreement aimed at curbing oil production has thus far failed to underpin prices and traditional energy is not expected to provide much of a basis for broader inflation over the near term.

Longer View

Following several years of a general expansion in the price-earnings ratio of equities, we believe returns from this asset class will moderate somewhat and become more closely tied to the rate of growth in company earnings. With equity market volatility increasing to at least the normal range, it’s important to keep in mind that equities are best suited for long-term investing, and that the allocation in your portfolio should reflect your investment horizon and risk tolerance. Fixed-income investments, while generally providing limited income in today’s low interest rate world, are an effective diversifier in a portfolio. When there is extreme pessimism in the equity market, fixed-income tends to outperform. There is no one asset class that looks better than others, in our view, as their current valuations accurately reflect their potential and risk. Talk to your professional advisor to ensure your portfolio is optimized and continues to meet your needs.

Courtesy of CI Funds

Although the above information has been compiled from sources believed to be reliable, as at the date indicated, we cannot guarantee its accuracy or completeness. The information is provided solely for informational and educational purposes and is not to be construed as advice in respect of securities or as to the investing in or buying or selling of securities, whether express or implied. All data provided is subject to change without notice. The authors of this publication are employed by CI Investments Inc. or its affiliates. CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. Neither CI Investments Inc. nor any of its affiliates or their respective officers, directors, employees or advisors is responsible in any way for damages or losses of any kind whatsoever in respect of the use of this information.

 

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