Working Past The Bear

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Working past the bear

If you’re an investor contemplating the risks of investing in equity markets once again, you’re not alone. Over the last few months, North American markets have made significant inroads towards a recovery.

The question is whether the rally will last. While no one can say for certain, there’s reason to believe that North American economies have finally reached sunnier skies. Take a look at some of the bright spots in the Canadian and the US economies.

Canada at a glance

The first quarter of 2003 was positive for our economy. Real GDP expanded 1.6% in the last quarter of 2002 and 2.4% during the first quarter of this year.

During the same time period, the jobless rate fell from 7.6% to 7.4% and housing starts rose from 212,000 to 222,000.  Other positive news included a 1.4% drop in industrial product prices as well as a decline of 6.5% in raw material prices. These price declines helped to boost Q1 corporate profits by 26.1%.

All in all, a good start to the year.  In June, the Bank of Canada decided to hold interest rates steady at 3.25%, citing soft global economic demand, the economic impact of SARS and the rise of the loonie. Despite these concerns, the Bank of Canada expects stronger growth in the second half of the year.

A look at the US

The first quarter of 2003 held good news for the US economy as well. In particular, real GDP growth was revised to 1.9%, non-farm productivity rose 1.9% and the University of Michigan’s Consumer Sentiment Index rose 6.1 points to 92.1 in May. Both new home sales and existing home sales were up, 1.7% and 5.6% respectively. The Institute of Supply Management indicated that activity for the non-manufacturing sector showed an increase from 50.7 in April to 54.5 in May. (A reading over 50 indicates growth.) All of t hese factors point to goods times ahead for markets. 

Report from the Federal Reserve

In a recent meeting, U.S. Federal Reserve Chairman Alan Greenspan reported that  May data suggested economic stability.  While Greenspan noted that “the acceleration has not yet begun,” he did point out that recovering markets and other indicators “are suggestive of a fairly marked turnaround.” The Fed continues to maintain an optimistic view of the situation, predicting growth to pick up in the second half of the year.  Given the above positive economic indicators, investors would be wise to make their way back into the market sooner rather than later. While it will take time for markets to get out of this downturn, investors who wait for the  perfect time to invest will be too late.  Liquid assets in Canadian households have grown by $45 billion over the last 30 months. Investors who stall could miss out on significant potential gains later down the road!