Recap: Week Ending January 17, 2014

January 19, 2014

Equity markets traded with little conviction in either direction this past week. Markets closed slightly positive as they entered a long weekend trade. Monday US markets will be closed for Martin Luther King JR day. With this being said, Canadian as well as European and Asian markets will remain open. Due to the long weekend volatility cooled off towards the end of the week as trading volumes shrunk. Little in the way of economic data was released this past week to move the market in either direction. It still appears the market is at a standstill in regards to the easing of the US Federal Reserves tapers of Quantitative Easing bond buying program. Despite uncertainty in regards to the direction of the market, equities continue to remain on highs despite the mammoth 1 year rally. Despite the little movement in equity markets, US treasuries appear to have caught a bid. The bid in treasuries as the debt class is sitting near year lows and equities at all time highs. As the outlook on the Canadian economy weakens as last week’s terrible job report takes further shape, the Canadian dollar continues to lose value vs. the US Greenback. Despite rallies in the USD, gold has yet to make any strong move in either direction. Naturally gold and the USD have an inverse relationship, however, strong downside to match the upside in the USD has yet to be seen.

This past week also marked the start of the bulk earnings season which saw many financial institutions reporting. According to Reuters, the start of the earnings season has been nothing spectacular. This can lead many investors to wonder if what appears to be the never ending rally may be running out of gas in equities. So far only 50% of the S&P 500’s companies have reported earnings; however, 50% of those have missed analyst’s expectations. It is still early in the season, with this being said; the ending seasonal average is roughly 63% of companies beat estimates. Last week saw the bulk of financial companies report earnings. 14 financial firms reported with only 8 of them beating profit estimates, which included Bank of America. Thompson Reuters profit forecast for the S&P 500’s fourth quarter growth was downgraded last week to 7.1% from 7.3%.

The upcoming week appears to be light in the way of economic data out of the US; however, some key figures will be released from the Canadian government. On Wednesday the Bank of Canada, BoC, will release their decision on interest rates for the upcoming month. The rate is expected to remain unchanged from the current level of 1%. The BoC will follow the announcement with a press conference regarding the state of the Canadian economy. Thursday Retail sales for Canada will be published with a previous reading of -0.1% and an expected reading of 0.3%. The week will close off Friday with the Bank of Canada’s Consumer Price Index Core year over year for the month of December. The previous reading came in at 1.1%, and the upcoming consensus reading is surveyed at 1.3%.

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