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Category Archives: The Markets

Odette Morin

Three main reasons why Markets are volatile

  1. The end of QE in the U.S is in sight. So it’s natural to expect some volatility as this unfolds gradually.
  2. The price of oil dropped unexpectedly in a big way. When unexpected events occur, the markets react.  The price of oil is expected to come back to the more normal level of $80 a barrel within a few quarters.
  3. Global Growth is slowing.  We have seen tremendous growth in the past 3 years following the financial crisis. The recovering economies are still expected to grow but at a more moderate level.  Any type of slow down affects the markets.

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. Learn to live with market volatility by focusing on your investment earnings yield instead of your investment market value.

Terry Broaders

Weekly Update January 27 2015

“I Love The Rain! It’s My Favourite Weather ! ” -Kristen Wiig

 

Energy and Consumer Staples Send TSX Modestly Higher

The Toronto stock market closed slightly higher Friday as consumer stocks advanced in the wake of a strong retail report and energy stocks climbed amid questions about whether the death of Saudi Arabia’s King Abdullah could mean a change in the amount of oil his country is producing.
The S&P/TSX composite index gained 15.37 points to 14,779.35, with the consumer staples section ahead 0.9 per cent as Statistics Canada reported retail sales rose 0.4 per cent to $43 billion in November. Economists had generally expected a decline. Statistics Canada also reported that the effects of the global oil slump weighed on Canadian inflation last month as falling pump prices helped slow the annual rate to 1.5 per cent, a deceleration from two per cent in November. On Friday, Statistics Canada’s latest consumer price index found gasoline prices in December fell 16.6 per cent compared with the previous year, which followed the year-over-year November decline of 5.9 per cent.

 

Canada Revenue Agency Gets ‘C’ Grade From Small Business

The CRA is getting better, but most small business owners wouldn’t know it, according to the Canadian Federation of Independent Business’ (CFIB) CRA Report Card. The majority of small business owners and tax practitioners surveyed support recent changes at the agency, but still give the taxman a “C” grade. “Paying taxes is not something that anyone looks forward to, but dealing with the CRA can be especially painful for small business owners,” said Corinne Pohlmann, senior vice president, National Affairs, at CFIB. Most small business owners are unaware of the agency’s recent service improvements: liaison officer initiative (8% aware); commitment to honour advice given online through my business account (16% aware); call agents required to provide their i.d. numbers (38% aware).
Overall, 55% of small business owners still feel that CRA treats them like they’ve done something wrong, and 54% think the agency needs to improve the clarity and quality of information it provides. When told about the above service improvements from CRA, an overwhelming majority of small business owners and tax practitioners were supportive (over 80%), suggesting that improved awareness would make a difference in the way small business owners perceive the agency.

 

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Market Update As Of January 23 2015

 The TSX closed at 14791, up 482 points or 3.37% over the past week. YTD the TSX is up 0.25%.

The DOW closed at 17673, up 161 points or 0.92% over the past week. YTD the DOW is down -0.90%.

The S&P closed at 2052, up 33 points or 1.63% over the past week. YTD the S&P is down -0.29%.

The Nasdaq closed at 4758, up 124 points or 2.68% over the past week. YTD the Nasdaq is up 0.66%.

Gold closed at 1293, up 15.00 points or 1.17% over the past week. YTD gold is up 10.32%.

Oil closed at 45.44, down -3.69 points or -7.51% over the past week. YTD oil is down -13.76%.

The USD/CAD closed at 1.243073, up 0.0447 points or 3.73% over the past week. YTD the USD/CAD is up 5.92%.

 

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

Odette Morin

Market commentary: Where are we headed in 2015?

The S&P/TSX Composite Index rallied into the final months of 2014, but collapsing oil prices led to a sharp selloff by year end.

As we head into 2015, the global economy continues to slowly expand. Although interest rates remain low, there are some indications that rates, at least in North America, could begin to move higher in the coming year. The key question for 2015 is whether the U.S. economy can continue to grow against the backdrop of a global slowdown. Investors will also need to weigh the impact of the strengthening U.S. dollar against falling energy prices. In the face of slower growth, interest rates are no longer expected to rise significantly. Nonetheless, the Fed is expected to begin rising rates during the second half of the year, which is expected to give continued strength to the US dollar. Should, however, the US economy succumb to slower growth, expectations for impending rate hikes might subside, resulting in a slip in the dollar’s value and possibly providing support to oil prices.

Nearly six years after the financial crisis, equities have delivered generally positive results, but markets are cyclical, and it is always difficult to predict their direction in any given year. While the sharp drop in oil prices has weighed on the Canadian equity market in particular, it is important to remember that asset classes, industry sectors and geographic markets often move in divergent directions. Lower oil prices, for example,can be positive for other sectors as they strengthen consumer confidence and reduce costs for manufacturers, transportation companies and related industries.

In our view, recent market events support the case for maintaining a portfolio that is well diversified across asset classes, geographical areas and industry sectors. Diversification will help to maximize returns for your portfolio, while mitigating risks as they occur, including currency and interest rate movements.

We work hard to develop the portfolio that best reflects your long-term financial goals and tolerance for risk. Should you have questions about your investments or any other issue, please feel free to give me, Terry or Anthony a call. We wish you all the best in 2015.

oil drop

 

Odette Morin

Large Drops in the Canadian Market lead by the Drop of Oil – What is causing this?

oil drop

 

 

 

 

 

 

 

Energy markets have been in turmoil since the OPEC announcement Wednesday last week that the group would not be cutting production. Although it was widely expected that OPEC would not take any production cuts at the meeting, the markets’ reaction to the actual announcement was drastic with oil prices declining 7% that day and continuing to slide to the now below $60. The tone of the market has shifted dramatically and there are talks about the possibility of $60-70ish oil for the next 6-9 months if not longer. The fundamental issue is that the oil market is oversupplied.

The vast majority of Energy sector experts’ comments this week indicate that OPEC will likely revisit its stance on production cuts over the next 6-9 months. “For many OPEC members, including Libya, Iraq, Algeria, and Venezuela, $60-70 oil poses a huge problem. The majority of OPEC countries need $90+ Brent oil prices in order to fund their social programs and are at high risk of social instability if these programs are cut. Even Saudi Arabia, which has significant foreign currency reserves to cover any shortfall in revenues has a huge population to support and high committed program costs which would eat through those reserves quickly at current oil prices (according to the IMF). “ wrote the BMO Energy sector team this week. (1)

“We continue to believe that the marginal cost of the majority of new oil production (full-cycle) is north of $80. Oil is a depleting resource and, over time, oil prices must migrate back to the marginal cost of supply in order to support new production. However, that does not mean that oil cannot trade below marginal cost for a period of time. We would expect that supply/demand fundamentals will improve through the back half of 2015 and become more balanced as we move into 2016. However, the oil market is complex and highly unpredictable and conditions can change very quickly. The imbalance in the market is not huge and history has taught us that supply disruptions are common. “ (1)

The Franklin Templeton Energy Sector team wrote a similar analysis this week. They too believe that low oil prices are not here to stay for the long term. “The marginal barrel-of-oil production growth cannot be profitably brought to market in the current oil price environment by private industry, nor can OPEC members balance their budgets, in our view necessitating higher prices in the future. In the short term, we may see various energy companies contend with low oil prices through a combination of reduced capital spending, asset dispositions and adjustments to dividend levels as necessary. “ (2)

To put things into perspective, from December 2nd to December 9th, 2014, the TSX has dropped 2.9%; while for the same period our average client account has dropped 0.9% or less. So highly diversified managed funds are doing better now of course.  Even if the Canadian Market took a big hit, your portfolios would not.

Take a look at the recent results of different sectors. This clearly shows the benefit of diversification.

see the chart here

(1)BMO Energy Sector team Commentary Dec 7, 2014

(2)Franklin Templeton Bissett Energy Sector team Commentary Dec 10, 2014

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.