Canadians are feeling increasingly worried about their personal debt, with an increasing number close to being unable to pay the bills every month as higher interest rates start to make an impact, a new Ipsos survey suggests.  More than a third of the over 2,000 respondents to an online survey done for the MNP Debt Index said they have no money left at the end of the month after paying bills and are unable to cover their payment.  They come to those conclusions honestly as the ratio of consumer debt to household income rose to another new high of over 170%.  While increasing debt seems to have become a global phenomenon, the chart below shows that Canada sticks out as an extreme case.   That can’t be good news as interest rates appear to be in the early stages of a sharp rise.
Canadians Leaders in Household Debt
Interest rates heading higher, stock valuations back to record levels, consumer and business sentiment uncomfortably high, stock market volatility benign and a record seven years since the last significant correction.  All of this suggests an increased level of risk for stock prices.  On the other side we have stronger than expected global economic growth, rising earnings (also boosted in the U.S. by the reduced tax rates) and the unabated flow of money into stocks from investors.  Lots of moving parts and it’s probably no time to be complacent about the outlook for stocks.  Our strategy is to stay in liquid stocks that can be sold quickly if market conditions change.  We are also overweight cyclical/resource stocks which have stronger earnings momentum, lower valuations and less sensitivity to rising interest rates.  On the other side, we have been reducing positions in growth stocks such as technology, consumer and industrials, where valuations are excessive.  We are avoiding interest-sensitive sectors such as utilities, consumer staples and most telecom stocks.  We also expect a more volatile year and are holding higher cash levels to have the liquidity to trade any opportunities as they arise.

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