Market Commentary

April 2014

Fundamentals Return to the Forefront


Unprecedented economic stimulus by the United States Federal Reserve following the 2008 financial crisis pushed stock markets to current highs. The expansionary monetary policy made a mockery of economic fundamentals. When economic indicators were strong there was a fear that the Fed would begin to reduce stimulus and stock markets would fall, and when economic fundamentals were weak there was optimism that the Fed would continue stimulus and stock markets would rally. A high correlation among risky assets was a byproduct of the monetary stimulus. When the Federal Reserve would announce yet another round of stimulus, stocks across the board would rally and vice versa. This resulted in a market that favored index funds over active management as bottom up stock selection was put on the back burner to top down macro-driven news. This is beginning to change.


With the slowing of asset purchases starting at the Federal Open Market Committee’s (FOMC’s) December meeting, we are beginning to see a renewed importance on economic fundamentals. The Federal Reserve has continued to reduce stimulus by $10B per month at each of its meetings since that time, although exact wording continues to suggest that tapering is not on a pre-set course and is subject to change based on economic fundamentals. Nonetheless, it appears that tapering will continue to be reduced in the amount of $10B per meeting unless economic fundamentals drastically begin to deteriorate; this isn’t expected to occur. Given that consensus expects continued tapering, the stock markets are now rewarding positive economic news. For stock pickers and fundamental investors this is great news. The illogical investing atmosphere over the past couple of years is beginning to fade and correlations among risky assets should continue to decrease.


Recent US economic indicators: ISM-manufacturing, nonfarm payrolls, retail sales, total consumer spending, vehicle sales, industrial production, and housing starts are improving (Scotiabank, 2014). The situation in Russia, although still ongoing, no longer appears to be a headwind for investor sentiment. Stocks are poised to trade on fundamentals, and fundamentals appear to be improving.



“We didn’t forecast the effects of bad weather terribly well this winter (go figure) or blatant Russian incursions onto the turf of another sovereign nation, but we remain committed to our fairly upbeat view on the US economy over the full 2014-15 forecast horizon.”

-Scotiabank. (March 2014). Global Views: Weekly commentary on economic and   financial market developments.  




This newsletter was prepared solely by Bruce Morrison who is a registered representative of HollisWealth™ (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The view and opinions, including any recommendations, expressed in newsletter are those of Bruce Morrison only and not those of HollisWealth. TM Trademark of The Bank of Nova Scotia, used under license. Morrison & Partners Wealth Strategies is a personal trade name of Bruce Morrison.