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Frank Mueller

Weekly Update – January 12, 2018

“Success is not final; failure is not fatal: It is the courage to continue that counts.” – Winston S. Churchill

TSX Winning Streak Snapped

The Toronto Stock Exchange’s S&P/TSX composite index rose on Friday but still posted a weekly loss. Friday saw a 21.24-point rise, good for a 0.13 per cent gain. However, the TSX was down 41.26 points on the week, closing at 16,308.18 (down 0.25 per cent week-over-week). This was the first weekly decline in a month, after three consecutive weekly gains.

Cannabis producers were down sharply, but their losses were offset by resource, gold and lumber gains.

U.S. Crude Oil rose by $2.99 USD per barrel or 4.87 per cent this week, closing at $64.43 per barrel.

Gold rose to $1,339 USD per ounce this week, as the US Dollar depreciated.

The December jobs report once again showed strong growth in Canada, with 23,700 full-time jobs and 78,600 total jobs added. Canada’s unemployment rate fell to its lowest mark in 41 years, from 5.9 per cent in November down to 5.7 per cent for December.

However, David Rosenberg, Chief Economist and Strategist at Gluskin Sheff + Associates opined “at face value the (unemployment) number looks great, but… there are question marks beneath the surface that has me thinking it is overstating the strength in the economy”.

Undaunted, the Loonie took the jobs numbers and moved upward to settle at 80.24 cents to the Greenback. Should the Bank of Canada raise their key rate next week (more on that below) we can expect the Loonie to jump again.

U.S. Markets Continue to Rise

The Dow Jones Industrial Average (DJIA) continued to skyrocket this week. Last week, the DJIA rose above 25,000 for the first time; this week, after a rise of 228.46 points (0.89 per cent) on Friday, the major index rose to 25,803.19, good for a weekly gain of 507 points, an even two per cent gain.

The S&P 500 rose 18.68 points (0.67 per cent) on Friday to close out the week at 2,786, good for a weekly gain of 1.57 per cent.

NASDAQ gained 49.29 points (0.68 per cent) on Friday to close at 7,261, a weekly gain of 124 points (1.74 per cent).

Bank of Canada Expected to Raise Rates Next Week

This coming Monday, January 15th is the dreaded “Blue Monday 2018”, where the perfect storm of poor weather, short days and long nights, the realization of how much was *actually* spent over the holidays, the fact the holidays are now firmly in the rear-view mirror, low motivation levels, and finally, the realization that most or all of our New Year’s Resolutions have failed to take hold all combine to create the saddest day on the calendar year.

For those who haven’t managed to keep spending in check over the holidays (or otherwise), this Wednesday may add to the misery. The Bank of Canada is overwhelmingly expected by analysts to raise its benchmark rate to 1.25%, up from 1.00%, this coming week. Many big banks such as RBC, TD and CIBC have already raised their mortgage rates in anticipation.

As rates climb, you can expect credit balances with variable rates, such as variable rate mortgages, home equity lines of credit (HELOCs), and secured & unsecured credit lines to increase their rates accordingly. As a result, borrowers will now pay more interest each month on these balances. Credit card rates (which are generally sky-high at 19.99 – 28.99 per cent) won’t be affected, but the rates are so high that you shouldn’t carry balances anyway.

Bottom line: pay down those credit lines where possible to avoid paying more interest each month.

WEEKLY MARKET WRAP-UP

North America
The TSX closed at 16308, down -41 points or -0.25% over the past week. YTD the TSX is up 0.61%.
The DOW closed at 25803, up 507 points or 2.00% over the past week. YTD the DOW is up 4.39%.
The S&P closed at 2786, up 43 points or 1.57% over the past week. YTD the S&P is up 4.19%.
The Nasdaq closed at 7261, up 124 points or 1.74% over the past week. YTD the Nasdaq is up 5.19%.
Gold closed at 1339, up 14.00 points or 1.13% over the past week. YTD gold is up 2.21%.
Oil closed at 64.43, up 2.99 points or 4.87% over the past week. YTD oil is up 6.64%.
The USD/CAD closed at 0.80239, down -0.0044 points or -0.55% over the past week. YTD the USD/CAD is up 0.89%.

Europe/Asia
The MSCI closed at 2172, up 15 points or 0.70% over the past week. YTD the MSCI is up 3.28%.
The Euro Stoxx 50 closed at 3613, up 5 points or 0.14% over the past week. YTD the Euro Stoxx 50 is up 3.11%.
The FTSE closed at 7779, up 55 points or 0.71% over the past week. YTD the FTSE is up 1.18%.
The CAC closed at 5517, up 46 points or 0.84% over the past week. YTD the CAC is up 3.84%.
DAX closed at 13245, down -75.00 points or -0.56% over the past week. YTD DAX is up 2.53%.
Nikkei closed at 23654, down -61.00 points or -0.26% over the past week. YTD Nikkei is up 3.91%.
The Shanghai closed at 3429, up 37.0000 points or 1.09% over the past week. YTD the Shanghai is up 3.69%.

Fixed Income
The 10-Yr Bond closed at 2.55, up 0.0700 points or 2.82% over the past week. YTD the 10-Yr Bond is up 6.25%.

Sources: Globe Advisor, BNN.ca, Yahoo! Finance

Frank Mueller

Weekly Update – January 5, 2018

“Every accomplishment starts with a decision to try” – Anonymous

New Year, Same Rally

The Toronto Stock Exchange’s S&P/TSX composite index dropped 63.50 points (0.39 per cent) on Friday to finish at 16,349.44. Resources weighed on the TSX on Friday, with oil, gold, copper and other metals pulling back on the day.

However, the TSX enjoyed a gain of 0.9 per cent on the week as the extended market rally continued into 2018.

Statistics Canada announced the December jobs numbers, with 79,000 new jobs being added. One caveat, however, is that most of them were seasonal, part-time positions. However, Canada’s unemployment rate of 5.9% in November was a full percentage point lower than in November 2016.

Retail sales data, housing starts, and consumer confidence levels were all higher year-over-year as well.

U.S. Crude Oil dropped by 42 cents USD per barrel to finish the week at $61.59 USD.

Gold dropped by $1.30 USD per ounce on Friday, and finished at $1,320.30 per ounce.

The Loonie rose by 56 basis points on Friday to finish at 80.61 cents to the Greenback, a rise of 0.6989 per cent.

U.S. Markets Hit More Record Highs

The S&P 500 rose 19.08 points (0.70 per cent) on Friday to close out the week at 2,743.07.

The Dow Jones Industrial Average (DJIA) rose above 25,000 for the first time ever on Thursday, and jumped by 220.74 points (0.88 per cent) on Friday to finish at 25,295.87.

NASDAQ also had a good day on Friday, with a gain of 58.64 points (0.83 per cent).

Some encouraging global economic data helped to propel markets upward. US unemployment figures for November – like Canadian unemployment – were lower than a year prior.

2017 Market Recap

It was, in some ways, a strange year for the Canadian investor. Early in the year, Canadian markets were relatively flat, while south of the border, U.S. markets were (and still are) very hot. Overseas markets advanced. However, as the Canadian dollar appreciated relative to the Greenback, U.S. and many overseas gains were mitigated.

As the year progressed, the Bank of Canada raised rates twice, and the Fed also raised rates. The BoC raising rates led to a dampening of fixed income returns. Luckily, the TSX rebounded late and was able to post a decent, if unremarkable, 6% increase on the year.

Most major international indexes posted double-digit returns; in fact, even factoring the appreciating Loonie, global markets outpaced Canadian markets.

So, what is the lesson here? In our opinion, this information reinforces the benefit of sound diversification, not only between equities and fixed income, but also regional diversification. Canadian investors have the reputation of being the most biased toward domestic markets, and, at least in 2017, the Canadian investor who invested heavily in Canada at the expense of other regions certainly missed out on some significant gains.

If you have questions about your asset allocation or would like to come in for a review of your portfolio, please let us know!

2017 Market Recap: By The Numbers

North America
The TSX finished at 16,209, up 6.0% for 2017
The DOW finished at 24,719, up 25.1% for 2017, or 17.0% in $CDN
The S&P 500 finished at 2,674, up 19.4% for 2017, or 11.7% in $CDN

The NASDAQ finished at 6,903, up 28.2% for 2017, or 19.9% in $CDN
Gold finished at $1,303 USD per ounce, up 13.1% for 2017
Oil finished at $60.42 USD per barrel, up 12.5% for 2017
The USD/CDN finished at 0.7955, up 6.9% for 2017
The CDN/EUR finished at 1.5089, up 6.8% for 2017

Europe/Asia
The MSCI World finished at 2,103, up 20.1% for 2017, or 12.3% in $CDN
The MSCI EAFE finished at 2,051, up 21.8% for 2017, or 13.9% in $CDN
The MSCI EM finished at 1,158, up 34.3% for 2017, or 25.7% in $CDN
The FTSE 100 finished at 7,688, up 7.6% for 2017, or 10.3% in $CDN
The DAX finished at 12,918, up 12.8% for 2017, or 20.4% in $CDN
The Nikkei finished at 22,765, up 18.9% for 2017, or 15.3% in $CDN

Sources: Globe Advisor, TD, Yahoo! Finance

Frank Mueller

Weekly Update – December 8, 2017

“We make a living by what we get, but we make a life by what we give” – Winston Churchill

TSX Rises on to End Week on a Positive

The Toronto Stock Exchange’s S&P/TSX composite index rose by 80.39 points Friday, a 0.50 per cent gain, to close at 16,096.07. On the week, the TSX managed a gain of 57.10 points (0.36 per cent). Nine of the 10 main groups rose on Friday.

Gold dropped $3.90 USD per ounce on Friday (0.31 per cent) to close the week at $1,245.90 per ounce. On the week, this represents a drop of $33.80 an ounce (2.64 per cent).

Increasing Chinese demand for oil, coupled with potential supply-side issues out of Africa, led oil up on Friday; however, oil was down for the week overall. West Texas Intermediate (WTI) closed at $57.33 USD per barrel, up 64 cents (1.13 per cent), but was down 96 cents for the week, a drop of 1.65 per cent.

The Loonie sat at 77.87 cents to the Greenback on Friday (as of 2:14pm), a gain of 12 basis-points (0.17 per cent). On the week, the Canadian Dollar was down 1.02 cents (1.29 per cent).

U.S. Markets All Gain on Friday

Friday saw increases across the board on Wall Street. The Dow Jones Industrial Average (DJIA) was up was up 117.68 points (0.49 per cent) to close the week at 24,329.16.

The S&P 500 gained 14.52 points (0.55 per cent) to finish at 2,651.50.

The NASDAQ rose by 27.24 points (0.40 per cent) and settled at 6,840.08.

November jobs numbers propelled markets upward to end the week, a further signal of a strong economy. Analysts already expected a rate hike next week, and the strong jobs figures propelled this expectation.

CRA Confirms 2018 Tax-Free Savings Account Room

This week, the Canada Revenue Agency (CRA) announced the new Tax-Free Savings Account (TFSA) room for 2018 will be unchanged at $5,500.

How does this announcement affect your investment portfolio? Well, this is $5,500 of new space to shelter your investments from capital gains tax. Remember that you contribute net income to your TFSA because unlike the RRSP, you don’t get a tax savings on your contributions to a TFSA. However, you get the tax savings when you make withdrawals from your TFSA – you pay no capital gains whatsoever – and you also enjoy tax-sheltered growth while your money is in the TFSA itself.

If you have questions about how best to invest your money, be it to an RRSP, TFSA or to a Non-Registered account, give us a call and we can discuss your specific needs!

Weekly Market Wrap-Up

North America
The TSX closed at 16,097, up 58 points or 0.36% over the past week. YTD the TSX is up 5.37%.
The DOW closed at 24,329, up 97 points or 0.40% over the past week. YTD the DOW is up 23.10%.
The S&P closed at 2,652, up 10 points or 0.38% over the past week. YTD the S&P is up 18.45%.
The Nasdaq closed at 6,838, down -10 points or -0.15% over the past week. YTD the Nasdaq is up 27.03%.
Gold closed at 1,246, down -8.00 points or -2.88% over the past week. YTD gold is up 9.49%.
Oil closed at 57.34, down -1.00 points or -1.71% over the past week. YTD oil is up 9.80%.
The USD/CAD closed at 0.77714, down -0.0108 points or -1.37% over the past week. YTD the USD/CAD is up 4.75%.

Europe/Asia
The MSCI closed at 2064, down -13 points or -0.63% over the past week. YTD the MSCI is up 17.74%.
The Euro Stoxx 50 closed at 3592, up 64 points or 1.81% over the past week. YTD the Euro Stoxx 50 is up 9.15%.
The FTSE closed at 7394, up 93 points or 1.27% over the past week. YTD the FTSE is up 3.51%.
The CAC closed at 5399, up 82 points or 1.54% over the past week. YTD the CAC is up 11.04%.
DAX closed at 13154, up 292.00 points or 2.27% over the past week. YTD DAX is up 14.57%.
Nikkei closed at 22811, down -8.00 points or -0.04% over the past week. YTD Nikkei is up 19.34%.
The Shanghai closed at 3290, down -28.0000 points or -0.84% over the past week. YTD the Shanghai is up 5.99%.

Fixed Income
The 10-Yr Bond closed at 2.38, up 0.0200 points or 0.85% over the past week.YTD the 10-Yr Bond is down -2.86%.

Sources: Globe Advisor, Yahoo! Finance, cbc.ca, Bank of Canada, Dynamic

Frank Mueller

Weekly Update – November 24, 2017

“This would be a much better world if more married couples were as deeply in love as they are in debt” – Earl Wilson

TSX Posts Modest Increase on the Week

The Toronto Stock Exchange’s S&P/TSX composite index, helped by broad gains, finished up on Friday by 33.79 points (0.21 per cent) to finish the week at 16,108.09. For the week, it was up 0.7 per cent (87.93 points) over last Friday’s finish at 16,039.26.

The energy and financial sectors gained on Friday.

Gold prices jumped this week overall, although it fell on Friday by $4.90 USD per ounce to $1,287.30. The $11.70 USD per ounce was good for a 0.92 per cent week-over-week increase.

U.S. light crude oil closed at a two-year high mark of $58.95 USD per barrel, while Brent crude oil gained 31 cents USD to finish at $63.86 USD per barrel. OPEC countries have once again been dancing around a potential supply cut, but nothing has been set in stone.

The Loonie gained 2 basis points on Friday, and stood at 78.68 cents USD as of Friday at 3:03pm PST. On the week, the Loonie dropped 25 basis points from last Friday’s finish of 78.93 cents to the Greenback, a drop of 0.32 per cent.

U.S. Markets See Dow Jones, S&P 500 Break Mini-Losing Streaks; NASDAQ Jumps

Black Friday, the famous shopping day that immediately follows the U.S. Thanksgiving – and for all intents and purposes, signals the green light for holiday shopping – meant a half-session on Wall Street. All of the Dow Jones Industrial Average (DJIA), S&P 500 and NASDAQ posted gains on Black Friday.

U.S. Thanksgiving Thursday saw three things: football, turkey and online shopping. According to Adobe Analytics, U.S. shoppers spent nearly $3 Billion online on Thursday.

Some heavyweight online retailers saw boosts on Friday, as optimism over the holiday shopping season is expected to bode well for 4th Quarter Earnings. Bricks & mortar stores with strong online presences fared quite well on Friday.

The Dow Jones rose 31.81 points (0.14 per cent) to finish at 23,557.99; the S&P 500 rose a modest 5.34 points (0.21 per cent) to finish at 2,602.42; the NASDAQ jumped 21.80 points (0.32 per cent) to settle at 6,889.16.

Lastly, the CBOE Volatility Index (VIX), dropped to a 3-week low of 9.67.

Canadian Household Debt Levels Highest Amount 35 Developed & Developing Countries

According to the Organization for Economic Cooperation and Development (OECD), Canada’s household debt ranks as the highest among 35 developed & developing countries that are monitored by the OECD. Read our blog post on the subject here.

Sources: Globe Advisor, Yahoo! Finance, Adobe Analytics, CNBC.com

Frank Mueller

OECD: Canadian Household Debt Levels Highest Among 35 Developed/Developing Nations

According to a recent report by the Organization of Economic Cooperation and Development, aka the OECD, Canada now has the highest household debt level per GDP in the world.

Canadian household debt is now greater than the national GDP, at 101% of GDP. As a brief refresher, GDP, or Gross Domestic Product, is the total of all goods and services – essentially everything – that is produced by a country; that is, everything produced within a nation’s borders.

The gap between Canada and the next-highest country on the list (South Korea), is roughly 8 per cent, as South Korea’s Debt-to-GDP mark of 93 per cent.

Economic powerhouses United Kingdom and United States post Debt-to-GDP levels of 88 per cent and 80 per cent, respectively; meanwhile, Germany’s Debt-to-GDP is below 60 per cent.

Why does this matter, you might ask? After all, this means that Canadians are spending money and driving the economy! This is only partly true. Yes, spending is good (to an extent); however, spending at this level can be risky.

Think about it like this: when stock markets like the TSX, S&P 500, NASDAQ, etc are increasing (recovery and expansion periods of the economic cycle), carrying debt is helpful. Debt allows companies the liquidity needed to purchase inventory, make capital investments (new bricks & mortar locations) and hire employees. But when the market starts declining and recessions hit, the companies that have over-extended themselves generally are hit the hardest.

Increasing interest rates heavily affect companies that are carrying debt, as all debt has a set interest rate. Revolving credit, such as lines of credit and credit cards, generally has an interest rate set as “prime + some additional amount”. So, when revenues start to decrease, during contractionary periods, while debt payment requirements begin to increase, companies carrying heavy debt loads can find themselves with a cash crunch.

The average family, in many ways, is synonymous with an average company, in that they have revenue (net income), they have debts (mortgage, car loan, line of credit, etc) and they must ensure they have liquidity to make it all work. The risk to families is camouflaged when things are going well, everyone is employed, and rates are low; however, the risk presents itself when rates increase (as they have twice since July), the economy slows down, and perhaps one – or both – of the family breadwinners suddenly find themselves out of work.

With all of this said, it is no surprise that the OECD has pointed out that such high indebtedness levels across the country is a risk to the economy. It is also no surprise that the soaring Debt-to-GDP has been linked to the red hot real estate markets across the nation.

The OECD stated in their report: “research points to a number of links between high indebtedness and the risks of severe recessions.” We are only about a decade removed from the U.S. housing crisis and resulting “Great Recession.”

Former British Prime Minister Sir Winston Churchill famously said: “Those who fail to learn from history are doomed to repeat it.” So, how can we learn from the past?

One of the most important things a family can do is create a budget. The budget must be feasible, it must be achievable, and it must allow for some fun.

A good budget should include some liquid savings account for emergency funds, travel funds, and the like. This way, when that emergency strikes, and you need cash in a pinch, there is a pool of money ready to deploy. Many people who do not have an emergency savings fund have to resort to drawing upon a line of credit. This will add to your debt load in a hurry.

If you do not have a budget in place, we can work with you to create one that is customized to your unique situation. If you have an interest in getting a budget on paper, please don’t hesitate to let us know!

Sources: CNBC.com

Frank Mueller

Weekly Update – November 10, 2017

“Inflation is when you pay fifteen dollars for the ten dollar haircut you used to get for five dollars when you had hair” – Sam Ewing

TSX Gains for Ninth Straight Week, Its Longest Winning Streak Since 1996

The Toronto Stock Exchange’s S&P/TSX composite index dropped 42.83 points (0.27 per cent) to finish at 16,039.26. The TSX was up 30.10 points (0.19 per cent) over last week’s finish at 16,020.16. The TSX is now on a nine-week winning streak, its longest such string of weekly gains since 1996.

Five of the TSX’s 10 main sectors were up on Friday, and six of the 10 main sectors were up on the week.

During this nine-week run of gains, the TSX – a performance laggard for much of 2017 – has jumped by over seven per cent. In the same timeframe, U.S. Crude Oil has jumped from $48.54 (USD) per barrel to $56.90 (USD) per barrel, a 17 per cent jump.

After reaching as high as $1,288 (USD) per ounce earlier in the week, Gold dropped $11.90 (0.92%) on Friday to finish $1,275.60. Even with Friday’s pullback, the precious metal was up $5.40 USD per ounce (0.43%) over last Friday’s finish of $1,270.20 USD.

The Loonie sat at 78.93 cents to the Greenback as of Friday 3:31pm PST, a rise of 11 basis points for the day, and 56 basis points (0.71 per cent) for the week.

U.S. Markets Flat Friday, Trump’s Tax Plan Concerns Weigh on Wall Street

Senate Republicans released their tax plan on Thursday. The plan significantly differs from the version that House Republicans tabled earlier; notably, the Senate’s plan called for corporate tax cuts… next year. A key pillar of Trump’s campaign included tax reform and corporate tax cuts. The expectation of corporate tax cuts helped propel the U.S. markets to unprecedented heights.

It is unlikely that Wall Street would look kindly upon a corporate tax cut delay of a year, with a market pullback a probable result.

The S&P 500 dropped 2.32 points (0.09 per cent) on Friday to settle at 2,582.30, a small decline of 5.54 points, or 0.21 per cent for the week.

The Dow Jones Industrial Average (DJIA) also pulled back Friday and for the week, with a Friday decrease of 39.73 points (0.17 per cent) and of 116.98 points (0.50 per cent) for the week.

NASDAQ bucked the Wall Street trend on Friday, with a modest 0.89 point, 0.01 per cent increase on Friday; however, the NASDAQ followed its counterparts downward for the week, with a 13.50 point, 0.20 per cent drop.

Sources: Globe Advisor, Yahoo! Finance