Weekly Market Commentary

Geopolitical tension overshadows positive economic news 
Developments in the Arab world contributed to a rocky ride for share prices this week. Early in the week, the crisis in Libya resulted in declines for most global equity markets. Mid-week, crude reached its highest level in two and a half years as a result of fears that Libya tensions would threaten supplies, and share prices declined on concerns about how businesses and the economy would cope with surging oil prices. Wall Street’s S&P 500 Index experienced its worst one-day fall since August.

However, as the week progressed, the issues were not as pronounced as market participants feared. Oil prices then moved lower, and major global markets saw solid gains on Friday.

There was also good news, particularly for the U.S. economic recovery. Two separate surveys indicated that American consumers are more confident than at any time in the last three years. There were signs of job market improvement as unemployment claims fell.

The strength of Canadian corporate earnings was confirmed by Statistics Canada. The agency reported that operating profits advanced 7.9% in the fourth quarter of 2010 compared with the previous quarter, and by 9% y-o-y. That strength continued this week, as banks reported better than expected profits.

“Safe haven” investments attracted funds amid geopolitical turmoil. Government bonds, particularly U.S. Treasuries, and gold benefitted from a continued flight from riskier assets.

For a look at the week ahead go to :

http://investorsgroup.com/consult/terry.pitz/english/cnf_frameset.asp?pg=/English/prodServices/marketCom/default.shtml

Weekly Market Commentary

New milestones for equity markets
Stock markets reached important milestones this week, as the global equity rally continued.

The S&P/TSX Composite Index topped 14,000 for the first time since mid-2008. On Wall Street, the S&P 500 has doubled since its pre-crisis low in March 2009. The technology-heavy NASDAQ Composite Index rose to its highest point since October 2007. The MSCI All Country World stock index has surged more than 100% from its March 2009 lows.

Canadian stocks were strong performers over the week, propelled by the energy sector. Many emerging markets recouped losses from the previous week on a more optimistic U.S. economic outlook.

Despite worries over developments in the Arab world, cash continues to flow into stocks. There is increasing evidence that once-reluctant individual investors are now embracing equities. A key factor pushing prices upward is rotation out of other asset classes, such as fixed income investments.

Other factors buoying stocks include a steady stream of strong corporate profits and increasing corporate merger and acquisition activity. This week saw another huge buyout – a US$20 billion deal in the global pharmaceutical sector.

On the U.S. economic front, U.S Federal Reserve members raised their forecasts for 2011 growth to 3.4% to 3.9%, up from 3% to 3.6%. And economists surveyed by the Wall Street Journal indicated they expect the fastest growth in the U.S. since 2003.

In Canada, many forecasters are also raising growth estimates after last week’s report of considerable strength in Canadian exports. Exports surged 9.7% in December over November, the largest jump since February 1982.

For a look at the week ahead go to :

http://investorsgroup.com/consult/terry.pitz/english/cnf_frameset.asp?pg=/English/prodServices/marketCom/default.shtml

Your spouse can save you tax

With the introduction of the Tax-Free Savings Account (TFSA) and other federal tax changes in recent years, many people are wondering about the value of one of the most basic tax-saving strategies for couples: Income-splitting through a spousal Registered Retirement Savings Plan (RRSP).

A spousal RRSP can still be a worthwhile way to reduce your family tax bite in certain situations. Here’s how incomesplitting can work for you:

It provides a means of reducing a family’s overall tax bill by shifting income from a higher earner to the lower-income earner so that family income is taxed at a lower rate.

It may allow a couple to avoid a clawback of Old Age Security (OAS) benefits by keeping each partner’s income below the prescribed threshold.

Recent tax changes now allow Canadian retirees to split up to half of their eligible pension income (i.e. income that qualifies for the federal Pension Income Tax Credit) with their spouses or common-law partners. In addition, income-splitting with non-spousal RRSPs is also permitted, but only after the contributor reaches age 65.

Here’s when a spousal RRSP can be a valuable addition to your personal financial plan:

If you and your spouse intend to retire before age 65, the higher-earning spouse can contribute to a spousal RRSP but stop making those contributions three years before retirement. After retirement, the lower-earning spouse makes withdrawals from the spousal RRSP. Because no contributions had been made to the spousal RRSP during the previous three calendar years, none of the spousal RRSP income paid to the lower earning spouse is attributed to the higher earning spouse for taxation purposes.

If a lower-earning spouse exits the workforce to take a parental leave or an educational leave, he or she can receive a payment from a spousal RRSP. In a year of little or no additional income, that person will pay little or no taxes.

If one of you continues to work after age 71 and generates “earned income” for RRSP purposes, that person can no longer contribute to their RRSP but can contribute to a spousal RRSP until the end of the year that the spouse attains age 71.

If a person dies and has unused RRSP contribution room, no contribution can be made to the deceased’s RRSP. However, a final RRSP contribution that is made to a new or existing spousal RRSP within 60 days following the end of the year of death is deductible on the deceased’s final tax return.

Is a spousal RRSP a worthwhile incomesplitting strategy for you? Ask about income-splitting and other tax planning and retirement savings strategies that may benefit you and your family.

Mortgages: 'If you're going fixed, do it now'

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Today RBC and TD raised 5 year fixed mortgage rates by .25 % joining BMO and CIBC who raised their rates yesterday. Jim Flaherty, the Canadian Minister of Finance,  warned that mortgage rates will continue to rise, which added to a chorus line of simliar warnings including those by the Bank of Canada Governor Mark Carney.

If you were listening to the evening news bank economists are saying they’re not sure where rates will end up. But you can believe Mr. Flaherty and Mr. Carney – rates have only one way to go - up!

The reason fixed rates mortgages are rising now is because swap rates – the rate lenders pay to borrow from each other – have been rising since the start of the year. So lenders are passing on this cost to borrowers by raising their fixed rates.

The reason behind the increase in swaps is that the markets are factoring in an interest rate rise sooner rather than later.

Therefore borrowers considering switching to a fixed rate should do so as soon as possible as there is every likelihood fixed rates will rise further in the coming days.

If you're carrying debt on high rate credit cards, department store cards, car loans, etc... now could be a good time to consolidate, particularly for those with large amounts of equity in their homes. Roll that credit card debt over into your mortgage or into fixed rate LOC and for some, it will mean thousands of dollars in annual savings, freeing up cash flow for other uses including paying down your mortgage faster.

Weekly Market Commentary

Markets advance in the face of Egypt concerns
Equity markets around the world advanced this week, as economic optimism and strong corporate profits outweighed concerns over developments in the Middle East.

While civil unrest in Egypt led to volatility, most markets came out ahead. However, investors continued to ponder the potential for disruption of oil supplies owing to the Egypt crisis. This sent Brent crude—the Asian and European oil price benchmark—above US$100, its highest level since the final quarter of 2008.

North American markets were the strongest performers, with European and Asian markets also recording healthy gains. On Wall Street, indexes registered their biggest weekly advances in two months. The Dow Jones Industrial Average closed above 12,000 for the first time since June 2008. The S&P 500 closed above 1,300 for the first time since August 2008.

With more than half of S&P 500 companies already reporting fourth-quarter 2010 earnings, 70% have beaten expectations. The Canadian earnings season, which started later than in the U.S., appears on track for strong results.

The consumer recovery continues. Rising automobile sales point to a rebound in spending. January sales in the U.S. surged 17.3% year over year, while in Canada they climbed 3.6%.

Signs of growing momentum in the U.S. economy surfaced. That’s good news for Canadian companies, since more than 70% of Canadian exports go to the U.S. New claims for unemployment benefits fell, productivity rose and activity in the manufacturing and service sectors increased.

However, U.S. Federal Reserve Chairman Ben Bernanke said Thursday that despite signs of improvement, the economy faces an extended period of high unemployment and low inflation. He also expressed concerns about the country’s large deficit.

Statistics released Friday sent mixed signals about the U.S. job market. The unemployment rate unexpectedly fell to its lowest level since April 2009. However, fewer new workers were hired than expected which can be partially explained by the severe winter weather that occurred in the week the data was collected. In Canada employment growth was higher than anticipated, although the unemployment rate rose marginally.

In other news this week:

Despite the fastest acceleration in euro-zone inflation since late 2008, the European Central Bank held the line on interest rates. The euro fell against the U.S. dollar on concerns about the ECB’s inflation stance.

Along with oil, other commodities rose. Copper prices hit record levels.

U.S. Treasury debt yields rose to eight-month highs on positive economic data. Meanwhile, the Federal Reserve surpassed China as the leading holder of U.S. Treasury securities.

Canadian mergers and acquisitions in January soared to a monthly value of $16.4 billion, according to Bloomberg data.

For a look at the week ahead go to :
http://www.investorsgroup.com/consult/terry.pitz/english/cnf_frameset.asp?pg=/English/prodServices/marketCom/default.shtml