Over the past week North American economic data has continued to be positive. However, one primary negative has been the decline in energy related commodity prices, and while this is positive for consumer related spending it has challenged energy related sector companies. Despite near term weakness in commodity prices we believe the longer term fundamentals for both the consumer and energy sector remain robust.
This morning the United States witnessed its biggest payroll gains in nearly three years with a broad based hiring surge ranging from factories to offices and retailers. The Labour Department also announced that the jobless rate held a five year low of below 6%, while hourly earnings also rose at their highest pace since June of last year. With persistent job growth that is generating income growth we would expect to see increases in the likelihood for employment opportunities over the course of 2015.
Within this dynamic of jobs growth, more spending and stronger GDP growth the improving economy will help assure Federal Reserve policy makers that an increase in borrowing costs can be withstood. The next Federal Reserve Open Market Committee’s meeting is just around the corner on December 16 and 17 and we would expect to hear considerable discussion around the timing of when they may raise interest rates for the first time since 2006.
The continued positive economic data south of the border is also spurring the discussion for interest rates to rise sooner rather than later and the Insurance sector is expected to benefit greatly. With interest rates expected to rise as opposed to remaining flat or declining, our expectation is that the Insurance sector will begin to witness greater appreciation versus the Canadian Banks. Thus you can expect to hear more from us regarding taking some profits (i.e.: trim) on our bank holdings, which have done quite well, and re-allocate those profits towards the Canadian Insurers such as Manulife Financial.
We will also continue to increase our ownership of the US Consumer related assets as the economic data demonstrates expansion. Our increased ownership of direct US assets has been systematic and we have continued to raise allocations towards the Vanguard Consumer Staples ETF, Fidelity US Monthly Income and Fidelity Small Cap America Funds.
Across the pond we have seen European capital markets rebound from a very difficult October and November, amid comments from the head of the European Central Bank Mario Draghi, that quantitative easing will be considered at their January 22nd meeting. As the fears of a German recession lessen, the overall Eurozone looks better. But we feel it is still too early to hold any European equity assets for clients, although some of our Global Fixed Income managers, such as Manulife, Canso and RPIA (not all readers would have funds allocated to each of these managers), have participated in this recovery, providing us with a conservative approach to Europe.
Within Canada this week energy prices continue to weigh on our capital markets causing some consternation in the short term, however longer term North American and Global energy demand continues to increase, which we see as supporting higher longer term fundamental values. However we have modestly reduced our overall energy ownership, shifting those allocations towards the US Consumer sector.
For those of you looking to get into the Christmas spirit, the Vancouver Christmas Market is open now until December 24th at the Queen Elizabeth Theatre Plaza. This is as close as it gets to an authentic outdoor German Christmas village on this side of the pond. Head down to enjoy German food, Gluhwein (mulled wine), and family activities. Bright Nights Christmas train is also up and running in Stanley Park. Enjoy a scenic train ride and view 3 million twinkling lights, supporting The Burn Fund.
In other news, with last night’s dominating performance against the Pittsburgh Penguins, the Vancouver Canucks are now tied for the lead in the Western Conference. Saturday night the boys square off against the Toronto Maple Leafs. Go Canucks Go!
Thank you for your trust.
As always, we welcome your feedback. Have a great weekend.
The Dekker Hewett Group