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Category Archives: The Markets

Odette Morin

Stocks end painful day with biggest drop in 4 years. Should you be worried?

market crash

 

Market volatility has continued today, with markets opening in correction territory, only to rebound somewhat as of midday. Global equity markets have been under significant selling pressure over the past week. The volatility catalyst is tied to the recent moves China made to let their currency depreciate.

Within the span of the past several months we have seen three major global capital market regime changes: the breakdown of the 40-year old OPEC oil cartel and a downward spiral in crude prices; a generational shift in the Chinese economy from fixed asset spending to a consumer driven model; and Lastly, on the horizon we face the change from the US Federal Reserve’s zero interest rate policy to a tightening bias not seen in seven years.

That said, outside the energy sector earnings for the S&P 500 companies grew approximately 4% for the most recent quarter on a year-over-year basis.  Not stellar, but hardly recessionary.

What are the reasons to believe this is more likely a temporary pause in the current bull market?

In the United States the consumer remains healthy.  The labour market continues to improve and wages are growing.  US housing starts rose in July, a seven year high yet still 20% below the long term average.  Housing has lagged household formation and there is catching up to do.

While it is difficult to assess the magnitude of any period of panic selling in equity markets given that the performance variance of these events is so wide through time, the duration for this bout of weakness is likely to be measured in days or weeks…not in quarters or years. The near 15% sell-off in 2010 and close to 18% sell-off in 2011 were incredibly uncomfortable, but they did not mark the beginning of the end of the bull market. Keep in mind that the S&P 500 has experienced, on average, an intra-year drop of 14.2% over the past 35-40 years and we have had many positive longer-term outcomes.

The deepest, longest and thus most destructive equity market sell-offs have typically been associated with economic contraction. Currently, we believe the odds of a global recession remains rather low. European, Japanese and American leading economic data continue to point to either healthy or accelerating activity over the next 9-12 months. This should ultimately translate into a better tone to earnings and help to place a higher floor under share prices. It is times just like these when it becomes incredibly important not to give into emotion, but to follow your well thought out and pre-defined investment program.

­­­­­­­­­­­­­­­­­­­Like I wrote to a client today. Please do not worry.  In our investing years we will go through a lot of volatility.  Unfortunately, reacting would be a mistake. We could sell now and markets could recover more quickly than we thought and you would be left with the lower valuation.  It is safer to stay the course and ignore market swings.  For every stock sold, there is a buyer at the other end which thinks it is a good time to buy.  For the patient investor, it will have proven an excellent investment.   The market value of our account is less important that the dividends it generates.

Here is my investing 101 word of wisdom.

Always remember that equity investment returns are closely tied to corporate earnings growth and the price you pay for those earnings. Historically, over the long term corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations though are more volatile than earnings since they are influenced by investor sentiment, which swings between optimism and pessimism.

To summarize, be prepared for a period of volatility in the month ahead.  Europe is slowing, the Feds will start raising rates and the price of oil is set to stay low for a while.  But this should not change anything about the way you invest.  Use this period as a time of buying opportunity if you can and enjoy the stability offered through dividends.

Please feel free to call me, Terry or Anthony anytime to review your account or to book a meeting.
Some of the key market highlights outlined above were obtained from RBC, TD, Manulife and Dynamic funds market commentaries.

Terry Broaders

Weekly Update August 11 2015

 

“Somewhere, Something Incredible Waits To Be Known” -Carl Sagan

 

North American Markets Down On Positive Jobs Data

Weaker oil prices continued to weigh on the Toronto Stock Exchange Friday and even some stronger showing from the gold miners failed to stop the drop. North American markets closed lower Friday as positive jobs data from the U.S. suggested that the U.S. Federal Reserve is likely to raise interest rates in the fall. The S&P/TSX composite index was down 103.21 points at 14,302.70. In New York, the Dow Jones industrial average was down 46.37 points at 17,373.38, the Nasdaq index fell 12.90 points to 5,043.54, and the S&P 500 declined 5.99 points to 2,077.57.  The loonie lost 0.15 of a U.S. cent to 76.14 cents U.S. On the commodity markets, the December gold contract rose $4.00 to US$1,094.10 an ounce, the September crude oil contract lost 79 cents at US$43.87 a barrel and the September contract for natural gas was down 1.5 cents at $2.798.

 

Boomers Visions of Retirement Off The Mark ?

Baby boomers approaching retirement may be surprised at the realities they will face regarding the timing of their retirement and how they will actually spend their retirement, according to a study conducted for RBC. The 2015 RBC Retirement Myths and Realities poll surveyed pre-retirement baby boomers and retired boomers to see if the expectations of those pre-retirees are consistent with the experience of actual retirees. The results indicate that expectations are often not in line with reality. A striking difference exists, for example, in the issue of choosing when to retire. Eighty per-cent of pre-retirees say they expect to choose their retirement date themselves. But 43% of retirees say they did not make that choice. The reasons they gave include health, the need to be a caregiver to someone else and an employer’s request.

As well, when pre-retirees were asked how they believe they will spend their time in retirement, the most popular answer, from 70% of respondents, is “travel”; 64% say they will take time for themselves. However, the reverse is true for retirees: 72% say they are taking time for themselves and 62% say they are travelling. Respondents were also asked about what they would miss about their working days. Forty-nine per-cent of pre-retirees feel they will miss their paycheque the most. But that is a concern for only 26% of those already in retirement. The most popular response to this question for retirees (51%) was “socializing/interacting with colleagues.”

Ipsos Reid conducted the sixth annual RBC Retirement Myths and Realities poll through online interviews between Mar. 16 and Mar. 24. The survey used a national sample of 2,223 adults aged 50 or older who have household assets of at least $100,000.

 

Market Update as of August 7 2015

North America

The TSX closed at 14303, down -166 points or -1.15% over the past week. YTD the TSX is down -3.06%.

The DOW closed at 17373, down -317 points or -1.79% over the past week. YTD the DOW is down -2.58%.
The S&P closed at 2078, down -26 points or -1.24% over the past week. YTD the S&P is up 0.97%.
The Nasdaq closed at 5044, down -84 points or -1.64% over the past week. YTD the Nasdaq is up 6.71%.
Gold closed at 1091, down -7.00 points or -0.64% over the past week. YTD gold is down -6.91%.
Oil closed at 44.31, down -2.81 points or -5.96% over the past week. YTD oil is down -15.90%.
The USD/CAD closed at 1.313227, up 0.0086 points or 0.66% over the past week. YTD the USD/CAD is up 11.90%.

 

Europe/Asia

The MSCI World closed at 1753, down 7.00 Points or -0.40% over the past week.  YTD the MSCI World is up 2.52%.
The Euro Stoxx 50 closed at 3638, up 37.00 points or 1.03% over the past week.  YTD the Euro Stoxx 50 is up 15.62%.
The FTSE closed at 6719, up 22.00 points or 0.33% over the past week.  YTD the FTSE is up 2.32%.
The CAC closed at 5155, up 72.00 points or 1.42% over the past week.  YTD the CAC is up 20.64%.
The DAX closed at 11491, up 182.00 points or 1.61% over the past week.  YTD the DAX is up 17.19%.
The Shanghai closed at 3744, up 80.00 points or 2.20% over the past week.  YTD the Shanghai is up 15.75%.
The Nikkei closed at 20725, up 177.00 points or 0.68% over the past week.  YTD the Nikkei is up 18.76%.

 

Sources: Bloomberg; Investment Executive; RBC; advisor.ca

Terry Broaders

Weekly Update July 14 2015

“Wisdom Begins In Wonder” -Socrates

 

TSX Back In Positive Territory as Global Concern Eases

North American markets posted solid gains Friday as traders took in encouraging developments in the Greek debt negotiations and a rebound on Chinese markets that continued to gain traction. The S&P/TSX composite index closed up 132.58 points at 14,411.07, as the latest employment survey from Statistics Canada showed a big increase in full-time employment in June despite an overall loss of 6,400 jobs as 71,200 part-time positions were eliminated. In New York, Dow Jones industrial soared 211.79 points to 17,760.41, although the widely watched index ended the week only slightly above where it started. The Nasdaq shot up 75.30 points to 4,997.70 and the S&P 500 advanced 25.31 points to 2,076.62. The Canadian dollar rose for a second consecutive day, up 0.17 of a U.S. cent to 78.87 cents. Meanwhile, Greece and its creditors appeared to be narrowing their differences after Athens offered an austerity package that included concessions in key areas such as tax increases and cuts to pensions.

 

Greek Drama in Context

The Greek drama is likely to be a source of uncertainty and volatility for global financial markets over coming days and, perhaps, weeks. The Eurozone is considered to be in a better place today than it was during these prior stressful episodes. Four key reasons support this view.

There is small direct economic linkages. The Greek economy represents 1.9% of Eurozone GDP and an incredibly small end-market for major-economy exports (e.g., 0.1% of GDP for France, 0.1% for Spain, 0.2% for Italy, and 0.2% for Germany).

Eurozone economies are in a better place to absorb shocks. Fiscal pressure is receding as many of the formerly weak links such as Italy, Ireland, Spain and Portugal make progress on structural budget balances. At the same time, these economies are beginning to grow once again and have shifted their current accounts into net creditor positions.

Private Sector financial exposure is modest. According to Bank for International Settlements’ data, total foreign claims on Greece have declined by 70% since 2009 to a manageable level of about €65 billion (~US$73 billion). Note that the private sector holds only €63 billion of Greek debt, of which €18 billion is held by non-Greeks.

Stronger firewalls are in place. After €250 billion in capital raises since 2008, Eurozone banks are much stronger than they were in 2010-12. At the same time, the Eurozone now has several facilities in place to limit the impacts of illiquidity and/or a financial crisis. These include a €500 billion crisis resolution mechanism , the Outright Monetary Transactions facility whereby the European Central Bank (ECB) can purchase bonds in the secondary market in order to stop a downward spiral in sovereign bond prices, and Quantitative Easing which is a central bank tool used to prevent price deflation from hampering a country’s efforts to right size over-indebtedness.

 

Blog Links

But I will Not Live To Age 90 !

Sweet Rewards of a Retirement Well Planned

What Does Greece Mean To You

 

 

Sources: Bloomberg; Investment Executive; advisor.ca

Terry Broaders

Weekly Update June 9 2015

 

“I Am Looking For An Honest Man” -Diogenes

 

TSX End Lower In a Broad Decline

Canadian stocks fell Friday for a second day, ending at a two-month low, after gold miners slumped as the dollar surged amid better-than-forecast hiring gains in the U.S. and Canada. The Standard & Poor’s/TSX Composite Index slipped 62.23 points, or 0.4 per cent, to 14,957.16 in Toronto. The gauge dropped 0.4 per cent for the week. Canada added six times as many jobs in May as economists predicted, with the job market proving robust even as the economy recovers from the effects of plunging crude-oil prices. Nine of 10 industries in the S&P/TSX declined Friday on trading volume 10 per cent lower than the 30-day average. The loonie was up 0.42 of a U.S. cent to 80.39 cents.

The Dow and S&P 500 eased on Friday as increasing expectations the Federal Reserve could raise rates as soon as September offset optimism over a recovery in the U.S. labour market. Stronger-than-expected jobs data for May and a pickup in wages were the latest signs of better momentum in the economy. Wall Street’s top banks said they expect the Fed to begin raising interest rates in September, followed by another increase before the end of the year, according to a Reuters poll. The Dow Jones industrial average fell 56.12 points, or 0.31 per cent, to 17,849.46, the S&P 500 lost 3.01 points, or 0.14 per cent, to 2,092.83 and the Nasdaq Composite added 9.33 points, or 0.18 per cent, to 5,068.46. For the week, the S&P 500 fell 0.7 per cent, its second straight week of losses, the Dow was down 0.9 per cent and the Nasdaq was down 0.03 per cent.

 

Canada Adds 59,000 Jobs in May

Canada’s economy added 59,000 jobs last month, but the jobless rate stayed the same at 6.8 % because more people were looking for work. Statistics Canada reported Friday that employment increased in Ontario, British Columbia and Nova Scotia, while it declined in Newfoundland and Labrador, Manitoba and New Brunswick. The rest of the country’s labour force was just about unchanged. Most of the jobs were in the private sector, fairly evenly distributed between full-time and part-time jobs. Two sectors; manufacturing and health care; were responsible for most of the gains, with 22,000 jobs added in the former and 21,000 in the latter. “With the U.S. economy showing clear signs of improvement, this is perhaps a sign that the Canadian non-energy economy is finally beginning to shift into a higher gear, aided by the lower Canadian dollar,” said David Madani, an economist with Capital Economics in Toronto. “We still think that the worst effects of this aren’t over, and still expect the economy to grow at a fairly unspectacular pace over the rest of the year,” he said. The 59,000 figure is much stronger than the 10,000 new jobs expected by a consensus of economists polled by Bloomberg.

 

Market Update as of June 5 2015

The TSX closed at 14957, down -77 points or -0.51% over the past week. YTD the TSX is up 1.38%.

The DOW closed at 17850, down -161 points or -0.89% over the past week. YTD the DOW is up 0.10%.

The S&P closed at 2093, down -14 points or -0.66% over the past week. YTD the S&P is up 1.70%.

The Nasdaq closed at 5069, down -1 points or -0.02% over the past week. YTD the Nasdaq is up 7.24%.

Gold closed at 1171, down -19.00 points or -1.60% over the past week. YTD gold is down -0.09%.

Oil closed at 58.88, down -1.54 points or -2.55% over the past week. YTD oil is up 11.75%.

The USD/CAD closed at 1.243424, down -0.0008 points or -0.07% over the past week. YTD the USD/CAD is up 5.95%.

 

Sources: Bloomberg; Investment Executive; advisor.ca

Odette Morin

The Death of Money

death money

 

 

 

 

 

 

 

A client of mine told me that she recently read the book called “The Death of Money”.  She asked my opinion on it.  She stated that she found the book “frightening”.  This book is a classic example of Doom and Gloom propaganda.  The book describes in detail what central banks do and how they affect currencies and global economies.  I have not read it, but I think it concludes that the central bank’s policies of excessive money supply could lead to outcomes like hyperinflation or devaluation of currencies (thus, “the death of money”).

I am generally weary of any extreme predictions or economic forecast. Doom and gloom and apocalyptic economic predictions have always been around.  I’ve heard it all over the years, the fall of currencies, countries, capitalism, disruptive technologies.  It’s normal investor behaviour to worry about investments and there are a lot of sources that try to pray on those fears, even profit from them.  Just like there are also “euphoric” and “sky is the limit” type economic predictions.

I always remind myself that stock markets have been around for 100+ years.  In the past century we’ve gone through events like the great depression, world wars, civil wars, cold wars, oil crises, financial crashes, rise and fall of emerging market nations, fiscal cliffs, the shift from British Pound to U.S dollar as the world currency reserve, etc…  In spite of all these events, markets are still around.  The financial crash of a 2008-09 was the most significant bear market event since the great depression of the late 20’s.  Six years later, the S&P 500 has not only recovered but is currently trading at record highs.

I also remind myself of the companies that make up the various markets.  Companies like Royal Bank, Telus, Coca Cola, Apple, Canadian National Railway, Fortis, Shopper’s, Amazon, Tim Horton’s, Suncor and so on.  Do we stop talking on cell phones, buying soft drinks and groceries, pumping gas, using bank accounts, drinking coffee, buying goods online, paying heating bills, and requiring medication because of central bank activity? The economic backdrop is important, but it is the ability of a company to make money that drives its stock price.  A bad economy will have a impact, but I do not think we should worry about all major companies disappearing overnight.

I hope this makes sense to you and give you a more rational look at things.

Terry Broaders

Weekly Update March 16 2015

“Truth Is Mighty – Mighty Scarce” -Bob Edwards, Publisher

 

Energy Sector Hurts The TSX

The S&P/TSX composite index fell 39.23 points on Friday to 14,731.49 as the TSX energy sector dropped 0.55% and oil prices declined for a fourth day with the April contract down $2.21 to $44.84 (U.S.). Oil prices dropped Friday after the International Energy Agency said U.S. oil production was up 115,000 barrels a day in February. The IEA warned that “behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”  The drop in oil came as the Canadian dollar fell 0.53 of a U.S. cent to 78.19 cents after falling below the 78-cent level during the morning for the first time since March 2009.  The move followed a report by Statistics Canada that the economy shed 1,000 jobs during the month and the national unemployment rate rose 0.2 of a point to 6.8%. New York markets also tumbled as traders also looked to the U.S. Federal Reserve’s meeting on interest rates next week. The Dow Jones industrials dropped 145.91 points to 17,749.31, the Nasdaq was down 21.53 points to 4,871.76 and the S&P 500 index shed 12.55 points to 2,053.4.

 

Household Debt Hits New High

The ratio of household debt to disposable income hit a new high in the fourth quarter as incomes increased at a slower pace than consumer borrowing, according to Statistics Canada. The ratio reached 163.3% in the quarter. That means households owed about $1.63 in consumer credit, mortgage, and non-mortgage loans for every dollar of disposable income. BMO chief economist Doug Porter said the increased debt is not surprising given the Bank of Canada’s decision to cut its key interest rate by a quarter of a percentage point in January. However, Porter noted that although debt has been rising, financial assets have too, as stock markets have rebounded and Canadians have been putting more away in their savings accounts. Household net worth rose 0.9% in the fourth quarter. On a per capita basis, household net worth was $233,000 in the fourth quarter.

 

Blog Links

RRSPS Do Not Have To Be Deducted All At Once

 

Market Update As Of March 13 2015

The TSX closed at 14732, down -221 points or -1.48% over the past week. YTD the TSX is down -0.15%.

The DOW closed at 17749, down -108 points or -0.60% over the past week. YTD the DOW is down -0.47%.

The S&P closed at 2053, down -18 points or -0.87% over the past week. YTD the S&P is down -0.24%.

The Nasdaq closed at 4872, down -55 points or -1.12% over the past week. YTD the Nasdaq is up 3.07%.

Gold closed at 1156, down -10.00 points or -0.86% over the past week. YTD gold is down -1.37%.

Oil closed at 45.14, down -4.53 points or -9.12% over the past week. YTD oil is down -14.33%.

The USD/CAD closed at 1.278289, up 0.0171 points or 1.36% over the past week. YTD the USD/CAD is up 8.93%.

 

Sources: Bloomberg; Investment Executive; BMO; advisor.ca