Growth in the US and Canadian stock markets will be tepid this year, as momentum from government stimuli runs out mid-year, but there are no real alternatives for returns, according to two of Bank of Montreal’s (BMO) private banking executives. 

Harris Private Bank, part of Chicago-based Harris Bank (a subsidiary of Bank of Montreal), is still overweight equities, even though it views the future with caution as conditions are likely to be tougher than in 2009.

“The economic front still provides a tailwind, although I would argue that that tailwind is unfortunately artificial,” said Jack Ablin, chief investment officer at Harris Private Bank referring to government stimulus spending.

“It's an electric fan powered by batteries and those batteries are set to run out probably sometime mid to late this year,” he added.

However recent data released from the US, which showed the economy grew by 5.7 per cent in the fourth quarter of 2009, means that the economy will be able to survive when the government withdraws support, said Mr Ablin.

He expects the S&P 500 – a broad gauge of US large-cap company performance – to rise by 10 to 15 per cent in the first half of the year, at which point higher taxes and the withdrawal of government support will kick in and Harris Bank will upgrade its cash position.

The bank’s favored sectors are financials, consumer discretionary, basic materials and technology.

The Toronto Stock Exchange S&P/TSX composite index also rallied last year, and BMO Harris Bank is still overweight Canadian equities, but mainly due to the meagre returns on other asset classes, said Paul Taylor, chief investment officer, BMO Harris Private Banking, Toronto. He expects the index to end the year at around 12,400 if the economy continues without “a misstep”.

On emerging markets, Mr Ablin said he was optimistic but that they had got ahead of themselves.