Martin Lefebvre, CIO and Strategist
• The likelihood for tightening (now that March is "live") increased from 27% to over 80% since the beginning of February. While a hike in March may have a limited impact, an increase in the dots from the summary of economic projections tied to the decision would move the dial much more as it would signal to investors that FOMC members plan to tighten three times 2017.
• We still believe most yields will have a tendency to appreciate by the end of the year. Therefore, we suggest treading cautiously on the duration-side and investing in shorter-term securities.
• Investing in equities has now become a question of optics. The class may look attractive or not depending on the lens used to analyze them. They are certainly exhibiting a curious mix of the good, the bad, and the ugly.
• The good: PMI figures are still going strong and are deeply in expansionary mode. Consequently, equities are also the best asset class to benefit from an accelerating growth environment. This is especially true when other investment possibilities such as fixed income, seem to offer lower potential returns.
• The bad: If policies set forth by the U.S. administration have less amplitude than what was previously announced, equities should suffer as we would expect that the reasons for appreciation would be just as valid the other way around.
• The ugly: The RSI briefly crossed over 80, a first since… 1996! Price volatility is also eerily low as the realized three-month standard-deviation is now standing at 6.3%, a level close to what we witnessed prior to the financial crisis. Fundamentally, while a 10%+ earnings growth is expected for 2017, we are left wondering how much of it is already priced in when the 12-month forward PE for the S&P 500 is now registering 17.8.
** I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial **