An Optimistic View from Canada

Econintersect: The Bank of Montreal (NYSE:BMO) has issued a BMO Harris Private Banking Report which is quite optimistic compared to many of the dire outlooks that are floating around this month.  The report said that the second half of the year will see improved stability in the Eurozone and moderate growth in the U.S. economy.  The outlook for Canada is also positive.  The report suggested increasing allocation to equities, especially U.S. and Canadian.  Bonds and cash should be cut back to allocations slightly less than equities, the report said.

The report said weakness in the U.S. economy in the second quarter is behind us and so far the third quarter has shown stronger economic data.

Here is the press release from Marketwire:

August 25, 2012 09:00 ET

REPEAT: BMO Harris Private Banking Report: Stability in the Eurozone and Moderate U.S. Growth on the Horizon

– Pledge to preserve Euro boosts consumer confidence

– U.S. economy grew 1.5 per cent; created 163,000 new jobs

– North American equity markets continue to be volatile

– Investors should consider a portfolio that puts a slightly greater allocation to equities than to bonds and cash

TORONTO, ONTARIO–(Marketwire – Aug. 25, 2012) – With the world keeping a close eye on Europe and the United States for signs of stability and growth, BMO Harris Private Banking’s latest Monthly Market Commentary Report notes that while the economy continues to right itself the situation continues to influence business and consumer sentiment.

Highlights from the report include:

The Eurozone

The first half of the summer saw good news and bad news in Europe:

• Investor concern pushed the yield on 10-year Spanish and Italian bonds to dangerously high levels.
• This prompted strong support from the European Central Bank; its pledge to “do whatever it takes” to preserve the Euro currency boosted investor confidence.
• In turn, the risk premium for Spanish and Italian 10-year bonds dropped and Eurozone stock markets rallied.

“Policymakers have the will and ability to resolve the Eurozone situation and avoid systematic damage to financial systems, but only time will tell how their efforts will unfold,” said Paul Taylor, CIO, Fundamental Equities, BMO Asset Management Inc. and Investment Strategist for BMO Harris Private Banking

The U.S.

Mixed economic data emerged from the U.S.:

• Economic growth of 1.5 per cent in Q2 2012 is in line with expectations and consistent with the ongoing uphill recovery.
• New jobs numbered 163,000, better than the expected 100,000.
• The unemployment rate rose to 8.3 per cent, up by 0.1 per cent.

“While Q2 economic data was unambiguously weak, stronger economic data has emerged at the start of the third quarter in 2012,” said Mr. Taylor.

North American Equity Markets

North American equity markets remained volatile as global challenges continue to put pressure on the economy and policymakers:

• The Canadian equity market decreased slightly to 0.7 per cent since the beginning of 2012, but rose 0.8 per cent in July.
• South of the border, the U.S. equity market rose 9.3 per cent over last year, although it fell 0.4 per cent in July.
• The Canadian bond market is ahead 2.7 per cent year-to-date, up 0.7 per cent in July.

“We believe Canadian equities will continue to be relatively inexpensive and will generate moderate returns over the next 12 months, with both the economy and corporate earnings continuing to grow modestly,” noted Mr. Taylor.

BMO Harris Private Banking Investment Strategy

Mr. Taylor suggested investors should consider a portfolio that puts a slightly greater allocation to equities than to bonds and cash. He also recommended a greater allocation to Canadian and U.S. stocks than to non-North American equity markets.

To view the full report, please visit: www.bmo.com/harrisprivatebanking

Get the latest BMO press releases via Twitter by following @BMOmedia.

John Lounsbury

Sources:

• July 2012 Market Commentary. (BMO Harris Private Banking Group)

• Repeat:  BMO Harris Private Banking Report:  Stability in the Eurozone and Moderate U.S. Growth on the Horizon (Marketwire, 25 August 2012)