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Market Review for May 2016

Patio season is ramping up, will the market follow suit?

May was an interesting month filled with mixed results across all sectors and markets. The likelihood of a June rate hike now seems like a weak possibility, but an upcoming future rate hike is seems inevitable after stronger US economic data which led to a strong rally in the US technology sector and a drop in this year’s darling sector, precious metals. Overall, the global markets have improved this past month despite weaker overseas manufacturing numbers from China, UK and France that sent international stocks down while Britain’s debate over exiting the European Union created further uncertainty. The million dollar question going into the summer months in the US, is if the price momentum continues and take us to new highs or is another correction coming? Canada has a similar question, but oil is our main catalyst.

May 31st YTD

The most notable developments this month have been the following.

Canada 

– Well performing sectors are Basic Materials, Energy, Utilities and Telecommunications.
– Crude oil prices continued pushing higher during May, as prices surged to over $50 per barrel, only to fall back to $48.83 per barrel by the close of the month.
– The Canadian dollar weakened against the US dollar approximately $0.03 ($0.764) from last month due to mixed economic data out of Canada and the US strengthening at the same time.
– During the Bank of Canada’s May meeting, Governor Stephen Poloz maintained current interest rates as higher oil prices took some of the pressure off to cut rates to promote growth.
– The mixed economic data was a concern as Canada lost 16,500 manufacturing jobs and it comes at a bad time as the Fort McMurray wildfire is expected to cause a big hit on Canada’s already mundane economy.
– The Government of Canada is continuing to negotiate with Bombardier to aid the aerospace giant as Canada desperately wants to keep these jobs within this space in Canada. Quebec has already pledged $1 billion to help with the struggling CSeries project.
– Precious metals such as gold settled at a three-month low due to the continued strength in the U.S. dollar which helped push prices for the metal toward lows which were last seen in late February.
United States
– Well performing sectors are Utilities, Energy, Telecommunications and Basic Materials.

– The labor market cooled a bit following its strong run in March based on the latest information from the Bureau of Labor Statistics.

– The Federal Reserve did not meet this month; however only continued favorable economic conditions will allow them to raise the federal fund rate by 0.25%.

– The housing sector gained momentum in April, influenced by low mortgage rates and solid employment gains. New home sales grew at the highest pace in eight years, jumping 16.6% for the month compared to March.

– Retail sales (excluding autos, gas and building materials) registered the strongest monthly increase in two years, with April sales up 0.9% on the month.

Global
– The first-quarter GDP growth numbers in the Eurozone were revised down from first-round estimates but still beat initial expectations, with a pickup to 0.5% on the quarter and 1.5% on the year.

– Greece was back in the news as it and its creditors were able to reach a new deal that allows the country to receive new loans while outlining terms for future debt relief.

– In an attempt to jump start its sluggish economy, the Japanese prime minister has proposed a significant stimulus package. However, the 1.7% growth in the first quarter of Japan’s GDP may increase resistance to that stimulus proposal.

– The UK’s referendum on whether to leave the European Union (EU) is approaching on June 23rd, with polls showing considerable uncertainty of what may be the outcome.

– Venezuela’s government declared a state of emergency in response to massive protests after President Nicolas Maduro rejected a referendum on his leadership. Inflation is expected to top 400% this year as Venezuela is facing the most serious economic crisis of any country in Latin America.

– Unlike Venezuela, Brazil’s Senate voted to impeach President Dilma Rousseff, following a resounding motion in Congress. The president is accused of manipulating the budget and brings light to corruption and instability that many Brazilians say has driven the world’s seventh largest economy into the ground.

Eye on the month ahead
– We will be looking to see if the Federal Reserve decides to raise rates.

– Will the UK exit the European Union on June 23rd?

– Can oil continue its surge past $50 a barrel and stay above this key level?

– If the upward price momentum in the markets will continue over the summer months?

We continue to believe having a globally balanced portfolio with a focus on low volatility will help lower overall investment risk while having the ability to capitalize on investment opportunities.

Economic Calendar

Sources: Market Q, Bloomberg, Reuters, Globe and Mail, Wall Street Journal, Huffington Post, Forbes, Goldman Sachs, Al Jazeera

Disclaimer: Echelon Wealth Partners Inc. is a member of IIROC and CIPF. This document has been prepared as a monthly market update and does not contain any recommendations for any particular investment. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any investment decision should be based on your own risk tolerance and investment objectives and reviewed with an investment advisor. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. The data used in this document is from various sources and is believed but in no way warranted to be reliable, accurate, complete and appropriate.