1) Fiscal Policy: no specific details (yet) from the Trump Administration, but investors are retaining upbeat expectations.
2) Monetary Policy: Fed Chair Yellen has "paved the way" for a March 15th interest rate increase by 0.25% and the odds are approximately 80% in favour now.
In contrast the Bank of Canada is on hold and prudently waiting for more specifics (from US policy makers). The $US (vs. $C) is higher based on the expectations of increased US interest rates and steady Canadian rates.
3) Earnings: the 12 month forward looking Price to Earnings Ratio has reached new high's (since the early 2000's) at 17.9 times, relative to the 10 year average of 14.4 times.
That is because, despite all the positive energy in the stock market, earnings expectations are being revised down.
From 12.3 % year over year growth in Q1 to 9%.
From 11.5% in all of 2017 to 9.8%.
4) The US Economy: As Paul mentioned in his blog earlier in the week http://highrockcapital.ca/pauls-blog.html, the Q1 "GDP Now" expectation is now revised lower to 1.8% (on the back of weaker consumer spending: consumers are 2/3 of the US economy. They are confident, but not spending) from a previous estimation of better than 3%.
On Friday March 10th we will see the latest data on US Employment and Unemployment (and wage growth / inflation).
As it stands, our job (on behalf of our High Rock clients) is to assess risk in the current state of financial markets (with skill, competence and diligence) and apply it to their portfolios and the potential impact on their goals.
We would suggest that risk is currently high and rising.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist