CANNACORD ANALYST SEES SPRING MARKET PULLBACK

If an equity market pullback doesn’t occur in February, investors should brace for a bigger correction this spring, Canaccord Genuity warned in a new report.

Strategist Martin Roberge sees a risk of cyclical stocks overshooting in terms of valuation, as investor complacency appears to be running rather high.

He cited the gap between the S& P 500 forward P/ E ratio and the CBOE VIX, which hasn’t been this wide since July 1998, July 1999 and August 2000.

Roberge noted that each of those months preceded significant stock market corrections.

“One risk factor that could trigger a setback in stocks is the intensifying risk of a U.S.- China trade war now that Mr. Trump and the Mexican wall issue appears to have taken a back seat,” the strategist said.

Sticking with the strategy of taking advantage of market pullbacks by adding equity exposure, Roberge noted that dips in 2017 may be the last ones he recommends buying.

However, he pointed out that valuations for resource cyclicals are far from where they are at the peak of the cycle.

The strategist also noted that earnings per share growth expectations still look reasonable.

As for Canadian stocks in particular, Roberge highlighted net foreign inflows, which “do not point to saturated conditions yet.” Therefore, stocks are expected to outperform bonds again in 2017.