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The key question for investors during market rallies is, “How long can it last?” To answer that, it’s helpful to examine the primary forces pushing markets higher.

A close look at the data shows that the year-to-date surge in North American equity markets – 11.7 per cent for the S&P/TSX Composite Index and 11.1 per cent for the S&P 500 – is almost certainly down to central bank monetary policy.

We know that earnings growth is not driving the rally. The domestic reporting season is just getting in to full swing but the almost-complete U.S. earnings season included significant reductions in profit expectations. U.S. earnings forecasts have been slashed to the point where first-quarter profits are expected to show the first year-over-year decline in three years.

The weakening global economy is also an unlikely candidate for primary driver behind the rally. The Citi Economic Surprise Index for the global economy (not shown) measures economic data against economists’ consensus expectations. A positive reading on the index indicates that the most important data points – the index gives higher weightings more to larger countries and more prominent reports such as gross domestic product and industrial production – are coming in above expectations.

Currently, however, the Citi index’s level is minus 23.7, indicating that global economic growth continues to disappoint.

The Goldman Sachs U.S. Financial Conditions Index explains recent market behaviour where earnings and economic growth can’t. Developed by prominent Goldman Sachs economist Jan Hatzius, the index measures the extent of easy credit. Since the end of September, 2018, the S&P 500 and the Financial Conditions Index has moved in tandem.

To see the charts and read the rest of Scott Barlow’s analysis click here (for subscribers).

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Cascades Inc. (CAS-T). This stock is oversold, according to the Relative Strength Index (RSI). RSI buy signals have been reasonably successful in uncovering profitable buying opportunities over the past 36 months. In November 2016, a buy signal was followed by a whopping 64-per-cent rally to July of the following year. The next buy signal in August 2017 didn’t work quite so well – a 14.6-per-cent rally occurred in the next month, but the price headed due south quickly after the short term peak was hit. A November 2017 RSI buy signal was followed by a 29.3-per-cent rally before the end of February 2018. The chart suggests that while Cascades stock could rally from here, resistance from the 200-day moving average could be a problem. Scott Barlow takes a look at the stock and the charts (for subscribers).

The Rundown

The world’s hedge fund king has turned more upbeat about the economy. But it’s not all good news for investors

The U.S. economy exceeded expectations in the final quarter of last year, and Ray Dalio, the hedge fund king, has turned more upbeat about the outlook. So is it up, up and away for Wall Street? Sadly, no. While the latest reading, announced Thursday, showed the U.S. economy expanded at a solid 2.6 per cent clip in the fourth quarter, slightly above forecasters’ estimates, the pace of growth slowed. In recent weeks, Fed chairman Jay Powell has done his best to signal that will not be the case. His more dovish language has apparently had an impact, judging from the reaction of Mr. Dalio, the billionaire founder of Bridgewater Associates, the world’s largest hedge fund. On Wednesday evening, he announced in a blog post on LinkedIn that he had lowered his estimate of the chances of a U.S. recession before the next presidential election in 2020 to “about 35 per cent” – not exactly an all-clear signal, but considerably more chipper than his position 18 months ago, when he put the odds of a pre-election recession at more than 50 per cent. Ian McGugan reports (for subscribers).

Short sellers love this Canadian bank. Don’t bet against them

Laurentian Bank of Canada is a small bank but a big target for short-sellers, who are convinced that a downturn in the Canadian housing market will deliver severe pain. Now may not be the best time to bet against these naysayers. The Montreal-based bank, whose operations are largely confined to Quebec, delivered its fiscal first-quarter results on Wednesday. And while the results of its Big Bank peers have hardly been stellar, Laurentian’s were abysmal. Profit fell 33 per cent from the first quarter of 2018. Revenue fell 9 per cent, even as expenses rose 4 per cent. Its efficiency ratio (which compares expenses with profit; lower is better) surged to 74 per cent, up from 64.8 per cent last year. David Berman reports (for subscribers).

U.S. stock reign may not last over other regions

U.S. stock prices are outpacing those in most other regions to start 2019, but the gap is narrow and some investors are eyeing potential catalysts to tip the scales to the rest of the world. Investors say several factors could sway performance in favor of other developed or emerging markets, including slowing U.S. profit growth, a weaker U.S. dollar, improving economies in China and Europe and resolution of global trade tensions. The 11-per-cent gain this year for the S&P 500 is helping the U.S. benchmark index expand its global edge since the U.S. equities bull run began a decade ago. Lewis Krauskopf from Reuters explains.

Others (for subscribers)

Market rally ‘makes a mockery’ of portfolio risk management

Industrial sector rebound: Nine U.S. powerhouse stocks geared for growth

Yield Hog: John Heinzl’s model dividend growth portfolio as of Feb. 28, 2019

Lyft IPO filing shows surging revenue, widening losses

Friday’s Insider Report: Company’s president buys this stock that’s yielding 9%

Friday’s analyst upgrades and downgrades

Friday’s small-cap stocks to watch

Others (for everyone)

Private equity investors fret about managers overpaying for deals

Ask Globe Investor

Question: Recently you discussed ways to find Canadian stocks with a track record of raising their dividends. Where can I find a list of U.S. dividend growth stocks?

Answer: Google “U.S. dividend aristocrats” for a list of U.S. stocks that have raised their dividends for at least 25 consecutive years. Another option – which will also include stocks with shorter dividend growth records – is to check out the list of constituents in an ETF such as the Vanguard Dividend Appreciation ETF (VIG) or iShares Core Dividend Growth ETF (DGRO). I hold DGRO in my model Yield Hog Dividend Growth Portfolio (

Another useful website is, where you can look up the dividend growth records of individual Canadian and U.S. companies.

--John Heinzl

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Compiled by Gillian Livingston

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