The probability of U.S. stocks achieving double-digit growth, receding eurozone fears and a positive outlook for Canadian equities, have renewed optimism for financial markets, according to a new BMO Harris Private Banking report.
The report, New Year, Renewed Optimism for Financial Markets, also notes that January’s more moderate level of volatility may suggest that recent Greek debt restructuring talks have inspired confidence in market participants.
“The key issue for capital markets continues to be the eurozone and determining how its issues will be resolved,” said Paul Taylor, chief investment officer, BMO Harris Private Banking (Canada). “Although the scenario of an unstable credit situation appears to be less and less likely, we are still being realistic and recognize that it remains a possibility.”
Although conditions could still worsen and a disorderly default in the eurozone could have serious implications for the financial system, the probability of that outcome is lower today than it was at the end of 2011.
The eurozone isn’t the only jurisdiction showing signs of renewed confidence.
“There’s a feeling that the U.S. economy has turned a corner and 2012 could be a solid rebound year,” says Jack Ablin, chief investment officer, BMO Harris Private Banking (U.S.). “It wouldn’t surprise me if stocks offer low double-digit returns this year, compared to flat-lining last year.”
Recent U.S. economic data have revealed many improvements in the U.S including a growth in real GDP for the last quarter of 2011, improved businesses and consumer spending and the unemployment rate falling to 8.3%.
The positive trajectory expected for global growth, outside the eurozone, provides a decent backdrop for equity markets. As a result, the Canadian equity market may see a significant uptick on the back of rising commodity prices.
Further, relatively low equity market volatility this year has once again turned market participants’ focus on microeconomic factors, such as corporate data.