A slowing North American economy, uncertainty around the US housing market and concern over interest rates weigh on the minds of traders. As it does on the US Federal Reserve. The result… a stand pat decision by the Fed this week, with commentary that their remain on inflation watch. So what else is new?

Some analysts view that as reason to remain on Fed watch for a possible hike. I take the opposite view. Fed Funds will remain stable through the summer and the next move will be to reduce rates. Think about it; if you are buying into a higher interest rate scenario you have to buy into multiple rate hikes. One hike will not do much to slow inflation. And multiple hikes are not palatable for the US Fed, and certainly not palatable for politicians.

Despite the macro data on higher than expected inflation, slowing GDP growth and rock solid employment numbers, we have an earnings parade that has been better than expected. On both sides of the border. Important stuff, because earnings are still the primary driver of stock market returns.

Having said that, I am a little concerned about the quality of the earnings. Particularly among US companies. When you look at the better than expected numbers for global stalwarts like General Electric and Microsoft, you notice that they got a hefty bang for their buck when converting foreign earnings back into a weaker US dollar. So far the market has not reacted, but that could change once earnings season is over.

Canadian companies have faced the opposite problem. Our global exposure being translated back into one of the better performing global currencies, has taken some of the starch from the numbers.

So here’s the question for investors; are the Canadian numbers understating growth, or are the US numbers overstating reality? At this point in the cycle, and given the length of time that the markets have been rising without a decent correction, I am leaning towards the latter.

My approach inside our managed equity products is to maintain exposure to dividend paying stocks, while writing covered calls to offset some of the downside risk. Not to mention the added cash flow that comes from the option premium.