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February 21, 2012 06:00 ET

BMO Harris Private Banking Report: New Year, Renewed Optimism for Financial Markets

- Calming Eurozone Situation Inspiring Market Confidence

- US Stocks Poised for Double-Digit Returns

- Commodities Should Help Drive Canadian Equities

TORONTO, ONTARIO--(Marketwire - Feb. 21, 2012) - With 2012 well under way, experts at BMO Harris Private Banking are optimistic about the global economy and the outlook for financial markets this year, according to a new report published today, New Year, New Optimism.

Highlights from the report include:

Equity Markets

The level of equity market volatility that characterized the second half of 2011 was significantly reduced in January. Last year's volatility was generally attributed to market participants reacting to headlines about macroeconomic events - such as the European sovereign debt situation - rather than focusing on microeconomic factors like positive U.S. economic and corporate data.

The report also notes that January's more moderate level of volatility may suggest that recent Greek debt restructuring talks have inspired confidence in market participants, leading some to believe that a satisfactory resolution to the credit problems in the Eurozone will be reached.

U.S. Economy

Economic data has revealed many improvements in the U.S.:

  • Real Gross Domestic Product (GDP) grew in Q4 2011
  • Spending by consumers and businesses increased
  • The unemployment rate fell to 8.3 per cent

"There's a feeling that the U.S. economy has turned a corner and 2012 could be a solid rebound year," said Jack Ablin, Chief Investment Officer, BMO Harris Private Bank (U.S.). "It wouldn't surprise me if stocks offer low double-digit returns this year compared to flat lining last year."

Risk in the Eurozone

"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."

Mr. Taylor adds that conditions could still worsen and a disorderly default in the Eurozone would be extremely disruptive to the financial system. There is optimism, however, that the probability of that outcome is even lower today than it was at the end of Q4.

Global Growth

The positive trajectory expected for global growth, outside the Eurozone, will likely provide a decent backdrop for equity markets. As a result, there could be some advance in the Canadian equity market, with commodity prices at or slightly higher than current levels. The future looks brighter for the global economy, with positive returns in equity and fixed income markets.

To view the full report, please visit: www.bmo.com/harrisprivatebanking.

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