Tuesday, December 23, 2014

Diversity in your investment portfolio

I will periodically be posting information that I think is of interest and that I have received.
Canadians who diversified their equity exposure and invested in US Equities in 2014 made a wise decision.  The S&P 500 is up 12% YTD while the S&P TSX has done roughly 6% (price only).  With 2015 around the corner this trend looks likely to continue.  The Canadian consumer remains highly leveraged, our housing market is overvalued and a slumping oil price means eastern provinces will be under pressure to pick up the slack from those in the west.  By contrast, the US housing market looks stable, unemployment levels continue to fall and as this week’s Muse explains, American consumers are in a better position to spend in 2015 than they have been for years.

Key Takeaways

Widespread spending

  • ‘I don’t think there’s a single headwind for consumers, it’s all tailwinds blowing at different strengths’ said Mark Zandi, chief economist for Moody’s Analytics Inc.
  • According to a Bloomberg survey, spending is anticipated to increase by 2.7% in 2015, compared to the 2.2% growth seen in the first three quarters of 2014
  • ‘We don’t have all our eggs in one basket anymore where we’re just relying on the wealthy to drive spending’ said Ellen Zentner, a senior economist at Morgan Stanley

Broad-based Hiring
  • The breadth of industries hiring last month was the most extensive since 1998, a strong sign that the expansion is having widespread benefits on the economy
  • Weekly earnings adjusted for inflation climbed 0.9% on average last month, the biggest increase in six years
  • Consumers’ incomes are forecast to grow 1.8% over the next 12 months, the most since 2008 according to a Thomson Reuters/U of Michigan consumer sentiment surve

Middle Class
  • Research by Goldman Sachs economists shows that middle-income households spend the most on gasoline as a share of total household purchases
  • Furniture stores, vehicle dealers, clothing outlets, restaurants and hotels are among the retailers that benefit the most from wage growth and accessible credit, according to Morgan Stanley
  • ‘You’ve got your debt down to levels that are reasonable, your labor market conditions are making some really significant gains, so people are feeling much more comfortable and they’re willing to spend’ said Michael Carey, chief economist at Credit Agricole CIB.  Carey forecast a 2.9% increase in spending for 2015

While there are clearly many signs that the American consumer will help to propel the US economy in 2015, especially given the current exchange rate, prudent investors will be careful not to overexpose their portfolios to US stocks.  The unpredictable nature of the markets should be enough to remind investors to focus on their long-term goals and seek a reasonable growth rate. 

Happy Holidays,
Information provided by Great West Life


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