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Terry Broaders

Weekly Update October 28 2014

“Freedom Has Never Been Free” -Medgar Evers

 

Best Week For TSX Since Late August

The Toronto stock market registered a solid gain Friday at the end of a positive week as share prices continue to recover from a sharp sell-off earlier this month. The S&P/TSX composite index ran up 56.99 points to 14,543.82 and the Canadian dollar was unchanged at 89.02 cents US. New York markets were also higher with the Dow Jones industrials ahead 127.51 points to 16,805.41, the Nasdaq climbing 30.93 points to 4,483.72 and the S&P 500 index gaining 13.76 points to 1,964.58. Markets have continued to claw back losses from the recent sharp sell-off.

The Toronto stock market just had its best week since late August with a gain of 316 points or 2.2 per cent, leaving it down seven per cent from its highs of early September. The TSX is still up 6.75 per cent year to date. The Dow industrials gained 425 points or 2.6 per cent this week and the blue chip index is also well off the worst of the retracement, down just 2.75 per cent from its most recent record high Sept. 19. Traders were encouraged as worries about the global economy lessened. “We’re closer to the end of this than the beginning,” said Bob Gorman, chief portfolio strategist at TD Waterhouse. “People ask if its the start of a bear market – I say, no, this is simply a long overdue correction in a bull market and I think that, at the end of the day, earnings growth will be decent but not great and this will prevail and I think we’re going higher.”

 

Should Ottawa Use Surplus For Tax Cuts?

Canada’s budget watchdog says the country is on track to run a $3.6-billion surplus in 2014 to 2015, delivering a balanced budget a year earlier than government predictions.  However, a report released by Parliamentary Budget Officer Jean-Denis Frechette urges Ottawa to proceed with caution when it comes to using surplus cash on new spending initiatives or to introduce permanent  tax cuts. If not, Frechette warns the government risks falling back into deficit once economic growth slows.

The Harper government has pledged to cut taxes ahead of next year’s election. “Policy-makers should be wary of using surpluses to implement permanent tax relief or spending initiatives if they wish to avoid returning to deficits as economic growth subsides,” says the PBO’s latest economic and fiscal outlook.  The budget office predicts balanced budgets through 2019 to 2020 when it says the federal surplus will reach as high as $11.3 billion. During that time, it expects average annual surpluses of about $10 billion, which can be used for repaying debt, boosting program spending and cutting taxes.  Canada’s economic outlook has improved faster than expected in recent months, the budget office report says. It found the country’s real GDP was stronger than expected and it predicts further growth due to the improving U.S. economy.

 

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Sources; Bloomberg; Investment Executive; TD Waterhouse; advisor.ca

Odette Morin

Markets rebound last week

Signs that major pillars of the global economy may be in better shape than thought along with strong earnings reports, sent North American stock markets sharply higher last week.

But analysts have warned there is no assurance that markets have reached bottom in the course of this correction and volatility will be a factor for a while yet.

“The market now is trying to settle at the new normal,” said Kash Pashootan, portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company. And the new normal is one where valuations are not deeply discounted, they’re fairly valued and the new normal is one where there will be month-to-month volatility.”

A major reason for the decline on stock markets in September and October was worry about the state of the global economy and, more particularly, fears that the euro zone was about to slip back into recession.

As far as we are concerned, as long as we have a Balanced portfolio and own Quality, we can all weather this correction.

Terry Broaders

Weekly Update October 21 2014

“Don’t Find Fault, Find A Remedy” -Henry Ford

 

 

TSX Ends Higher Friday On U.S. Data, Oil Prices

Canada’s main stock index reached its highest level in a week on Friday as positive U.S. economic data and a rise in oil prices boosted the energy sector. The TSX jumped 174.71 points to 14,227.68, as traders bought up stocks badly beaten down over the course of a string of market jolts. There was also speculation that the U.S. Federal Reserve might extend a key stimulus program.

Data showing that U.S. housing starts and permits rose in September signaled the economic recovery might be on track. Upbeat quarterly earnings from major U.S. banks fueled the positive sentiment further. Stock markets have been in a corrective phase over the past month, weighed on by worries over global economic growth, oil demand and the direction of U.S. Federal Reserve policy.

U.S. stocks climbed more than 1% on Friday, with the S&P 500 posting its biggest gain in over a week as earnings offset concerns about the impact of weak global demand on corporate America. The Dow Jones industrial average rose 263.1 points, or 1.63%, to 16,380.34, the S&P 500 gained 23.98 points, or 1.29%, to 1,886.74 and the Nasdaq Composite added 41.05 points, or 0.97%, to 4,258.44.

 

Canadians Are Paying Down Mortgages At a Fast Rate

Canadians are paying down their mortgages at a record rate, significantly lowering the risk of default should interest rates rise, finds a new report from CIBC World Markets. “Canadian households did not only resist the temptation of low rates, they used those low rates to pay down debt at a pace not seen before,” says Benjamin Tal, Deputy Chief Economist, CIBC. “Despite a lethargic labour market and an unemployment rate that is still too high for the Bank of Canada’s liking, debt service performance in Canada has almost never been better.”
Homeowners are taking advantage of prolonged low interest rates to pay off their mortgages by accelerating their principal payments. In effect, they are voluntarily shortening their amortization periods. As a result, Mr. Tal estimates the average amortization period in the Canadian mortgage market is now closer to 20 years rather than the implicit assumption of 25 years the Bank of Canada uses in its calculations. Instead of spending their disposable income, Canadians are making sacrifices, choosing to make extra payments on their mortgage to get out of debt faster. This ultimately makes Canada’s mortgage market more stable because in the event of a rate hike, homeowners would simply return to their regular amortization period, he says.
“Canadian households are paying back an additional $11 billion a year in principal that’s not being officially recognized,” says Mr. Tal. “That extra cushion is sufficient to absorb the first 100 basis point increase in the effective mortgage rate, with households simply re-amortizing to offset the payment increase.”

 

Market Update As of October 17 2014

The TSX closed at 14228, up 1 points or 0.01% over the past week. YTD the TSX is up 4.45%.

The DOW closed at 16380, down -164 points or -0.99% over the past week. YTD the DOW is down -1.19%.

The S&P closed at 1887, down -19 points or -1.00% over the past week. YTD the S&P is up 2.11%.

The Nasdaq closed at 4258, down -18 points or -0.42% over the past week. YTD the Nasdaq is up 1.94%.

Gold closed at 1239, up 16.00 points or 1.31% over the past week. YTD gold is up 2.91%.

Oil closed at 82.96, down -2.57 points or -3.00% over the past week. YTD oil is down -15.87%.

The USD/CAD closed at 1.127825, up 0.0067 points or 0.60% over the past week. YTD the USD/CAD is up 6.08%.

 

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

Odette Morin

Should you worry about the recent stock market drop?

In recent weeks, stock markets have declined while investments considered to be “safe havens” have increased in value, including developed market government bonds and the U.S. dollar. Investor concerns have focused on the slow pace of economic growth, particularly in China, market worryJapan and Europe, continued conflict in the Middle East and the winding down of the U.S. Federal Reserve’s economic stimulus plan, which may lead to higher interest rates.

Markets began to turn lower in September, resulting in uneven results for the third quarter. The Canadian dollar and stock market were affected by weakness in the resource sectors, as the price of oil and other commodities dropped in response to downgraded expectations for global growth. After hitting a new high on September 3, the S&P/TSX Composite Index went on to post a modest drop of 0.6% for the quarter.In the U.S., the S&P 500 Index moved above the 2,000 mark before losing momentum and finishing the three-month period with a gain of 1.1% in U.S. dollar terms and 6.2% in Canadian dollars, the difference reflecting the weakness in the Canadian currency. Globally, the MSCI World Index was 2.1% lower in U.S. dollars, but was up 2.8% for the quarter in Canadian dollars.

The Canadian bond market, meanwhile, posted an overall gain of 1.1% during the third quarter, with higher-quality issues such as federal government bonds leading other segments of the market.

However, stock markets continued to lose value in the first two weeks of October, with economic data from Europe one of the factors disappointing investors. While these market movements have resulted in alarming headlines in the business press, I would like to put the numbers in perspective.

Even with the recent declines, the Canadian and U.S. stock markets were still positive for the one-year period (as of October 15), and the S&P 500 was up more than 175% from its low reached during the financial crisis in March 2009. In addition, the broad U.S. stock market had not had a correction, which is a drop of more than 10%, since October 2011. Such a long period of stability is, in fact, highly unusual for stock markets, and we should not be surprised by higher levels of volatility.

While no one can predict how prices will move in the short term, there are a number of circumstances that remain supportive of markets, including low interest rates, strong corporate earnings, and a strengthening North American economy. For example, the U.S. economy grew at an impressive annual rate of 4.6% in the second quarter, and the unemployment rate fell below 6%in September for the first time since July 2008.

I believe the best way to weather market volatility is to take a longer-term view and remain invested in a diversified portfolio tailored to your individual objectives. Diversification by asset class, industry sector and geographic region helps to provide more stable returns, because not all investments respond to events in the same way.

Here is a great article that everyone should read published last week in the Globe & Mail which discuss the subject. Find it here.

If you have any questions about your investments, please do not hesitate to contact me or Anthony at 604-878-0702.

Thank you for your trust and confidence during this period of market uncertainty.

Sources: CI Investments, Bloomberg, Reuters, Globe and Mail, National Post, and Financial Times. Index information was provided by TD Newcrest, PC Bond and Yahoo!Finance.

 

Anthony Sabti

September Decline Continues for Global Markets

The MSCI world index hit a seven-month low, and the price of crude oil dropped to a four-year low as worries about weak worldwide economic growth continue to take a toll on investor confidence.

The American S&P 500 index and the TSX Canadian index both fell over 3% for the week.

Investors have rushed to reduce big bets in stocks and other risky assets after benefiting from a major world equity markets that has only seen brief interruptions in the past three years.

A few choice quotes from portfolio managers and investment strategists on the recent volatility:

“It smells like there is a high degree of involvement from systematic traders, rather than fundamental traders. The magnitude of the move has been disproportionate to the change in the fundamentals,” – Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management.

“Economic data continues to be favorable and consistent with 3% growth in the U.S., which we have been calling for the past two years. As long as this growth continues, we expect that any corrections will be less severe than they usually are during bull markets. However, we do expect interest rate increases in the first half of 2015, and depending how fast they happen, and what’s going on with valuations, there will likely be a more substantial correction in equities and possibly corporate bonds. This should not be taken as the beginning of a bear market, but as a correction, and buying opportunity, within a continuing bull market.” – Dan Batastic, portfolio manager with IA Clarington.

“Many investors and “experts” have been predicting an equity market correction. We believe the recent decline is more of a “head fake,” largely driven by fears of a looming interest-rate hike. What helps us sleep at night is our belief that the U.S. economy has not reached a full-fledged expansion. The majority of key attributes suggest we are still in the recovery stage. Cycles typically end with an extended period of rising interest rates, rising inflation and high credit growth (leverage).” – David Taylor, portfolio manager with IA Clarington.

Later this month, the Federal Reserve is set to wind down the asset purchase program that has been credited with boosting markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for the Fed program and speculate that they will have to launch its own sovereign bond-buying program, styled on the Fed’s quantitative easing.

 

 
THIS WEEK IN MARKETS (as of October 10, 2014)

  • The TSX closed at 14227, down -563 points or -3.81% over the past week. YTD the TSX is up 4.44%.
  • The DOW closed at 16544, down -466 points or -2.74% over the past week. YTD the DOW is down -0.20%.
  • The S&P closed at 1906, down -62 points or -3.15% over the past week. YTD the S&P is up 3.14%.
  • The Nasdaq closed at 4276, down -200 points or -4.47% over the past week. YTD the Nasdaq is up 2.37%.
  • Gold closed at 1223, up 28.00 points or 2.34% over the past week. YTD gold is up 1.58%.
  • Oil closed at 85.53, down -2.41 points or -2.74% over the past week. YTD oil is down -13.26%.
  • The USD/CAD closed at 1.121138, down -0.0045 points or -0.40% over the past week. YTD the USD/CAD is up 5.45%.

Sources: Dynamic Funds, IA Clarington, National Post

Terry Broaders

Weekly Update October 6 2014

“I’m Drove Off Me Head!” -Newfoundland Expression

 

Stocks Ahead On Strong U.S. Employment Data

The Toronto stock market closed with a modest gain Friday even as a rebound in American job creation boosted confidence in the U.S. economy. The S&P/TSX composite index gained 29.14 points to 14,789.78 after the U.S. Labor Department reported that the American economy created 248,000 jobs last month, which handily beat expectations of about 215,000.  The U.S. jobless rate also ticked down 0.2 of a point to 5.9 per cent, the lowest level since July 2008. August job creation was revised upward to 180,000 from 142,000.  Toronto gains were held back by lower resource stocks as the strong U.S. dollar continued to punish commodity prices. Gold miners fell as bullion closed under $1,200 (U.S.) – its lowest close since February 2010. U.S. indexes registered solid gains with the Dow Jones industrials ahead 208.64 points to 17,009.69, the Nasdaq gained 45.42 points to 4,475.62 and the S&P 500 index climbed 21.73 points to 1,967.9. A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals which are dollar-denominated.  Losses were severe on the TSX this week because the Toronto market is heavily weighted by the resource sector. It fell 237 points or 1.6 per cent.

 

Federal Deficit To Be Smaller Than Earlier Projected

Prime Minister Stephen Harper says last year’s federal deficit will be more than $10 billion smaller than forecast, but he’s refusing to predict the rapidly improving bottom line will mean balanced books this fiscal year. Harper dropped the new, $5.2 billion deficit figure for 2013-14 — down from the $16.6 billion shortfall projected in last February’s federal budget — during a presentation to a business audience last week in Brampton, Ont. Harper insisted there won’t be a surplus until the 2015-16 election year. “The government has no plan or no intention to move this year into a surplus,” Harper said.

Downplaying the Conservative government’s fiscal position may be more about politics than bookkeeping. Economists and budget watchers, including the independent Parliamentary Budget Office, had calculated Ottawa may already be en route to a surplus this fiscal year, which ends next March 31, before the prime minister’s announcement further improved the bottom line.  A surplus would trigger a series of 2011 Conservative election promises that were contingent on balanced books, including a pricey and controversial plan to allow income splitting for tax purposes by couples with children under 18. Doubling the annual Tax Free Savings Account maximum to $10,000, doubling the children’s fitness tax credit and implementing a new adult fitness tax credit were also Conservative pledges tied to a surplus.

 

 

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Hold On  To Your Hat, We May Be Having A Market Correction

 

Market Update As Of October 3 2014

The TSX closed at 14790, down -237 points or -1.58% over the past week. YTD the TSX is up 8.57%.

The DOW closed at 17010, down -103 points or -0.60% over the past week. YTD the DOW is up 2.61%.

The S&P closed at 1968, down -15 points or -0.76% over the past week. YTD the S&P is up 6.49%.

The Nasdaq closed at 4476,  -36 points or -0.80% over the past week. YTD the Nasdaq is up 7.16%.

Gold closed at 1195, down -23.00 points or -1.89% over the past week. YTD gold is down -0.75%.

Oil closed at 87.94, down -3.98 points or -4.33% over the past week. YTD oil is down -10.82%.

The USD/CAD closed at 1.125678, up 0.0102 points or 0.92% over the past week. YTD the USD/CAD is up 5.88%.

 

Sources: Bloomberg; advisor.ca; Investment Executive.