Market Outlook February 23, 2015

This is not very good news. Interest rates are really low, but somehow, they are still falling slightly lower. The economy doesn’t seem to be strengthening, and there appears to be general panic (here in Canada) about the falling price of oil. In manufacturing countries, I’m sure they are happy, as the cost of a major input falls.

The stock market seems to be struggling. The asset class that has the best momentum is European stocks (XIN), but as I’ve said before, it’s doing well in Canadian dollar terms, likely mainly because the Canadian dollar is so weak. US small caps (IWM) and large caps (SPY) are also well-positioned for continued growth.

The most attractive of US large caps this week appear to be Amazon (AMZN), Beoing (BA), Walgreen (WAG), Lowes (LOW) and The Walt Disney Company (DIS). Among Canadian large caps, I like the looks of VRX and BAM.A.

Market Outlook February 16, 2015

It’s a holiday today, so market’s aren’t open.

Interest rates have crept up a small amount, but remain so low that they will be supportive of business growth. That’s not so good for bondholders, and it may be time to consider taking profits.

Emerging market stocks (XEM) have taken the lead in momentum. European stocks, Canadian large caps and US large caps are all well-positioned to continue short-term growth.

The last six months have been painful, but it starts to look like the stock market may be ready for positive performance. Here’s hoping! (Hope is not a strategy.)

Market Outlook February 9, 2015

When I last wrote, gold (IGT) had the greatest momentum. After that, Chinese stocks briefly took the lead, but gold has been in favour over the past four weeks. This is likely due to a price jump about three weeks ago (when the Bank of Canada dropped interest rates?), so it makes sense to see what other asset classes are showing positive momentum. These include emerging markets (XEM) and European stocks (FXI), although the latter is hedged to C$, which are weakening, and that may be the source of the positive performance.

Even though interest rates were already low, the central bank has reduced prime. That’s good for bond owners, but not prospective buyers. In the longer term, lower rates should spur economic activity, which would produce stock market growth. Time will tell.

Some stocks to look at this week (none of which I own) might include: Valeant (VRX), Metro (MRU), AgnicoEagle (AEM) which may regress as gold prices return to the mean, Amazon (AMZN), Lowes (LOW), and, for gamblers, a penny stock: LTS.

PSA: Direct Deposit

I did not know that the Government of Canada had made the decision to stop issuing cheques. Now that I’ve heard, it makes a lot of sense. In the past, I’ve received cheques for income tax refunds, GST rebates and Universal Child Care amounts. Other payments may include CPP pension amounts, old age security, GIS or veterans benefits.

Early on, I requested direct deposit, so that I would quickly and safely receive my government payments in my bank account. The benefit is that cheques are never late or lost. The only downside is that the one time I changed banks in the last five years, I had to notify the government. Having said that, I didn’t need to notify them when I moved and changed my mailing address, and the direct deposits kept coming.

From the government’s perspective, direct deposit is cheaper and safer. Rather than printing cheques and paying postage, they can distribute it via banks and ensure the money is getting to the right person. So I understand their push to get the word out to all Canadians that they will no longer be issuing paper cheques.

With tax season upon us, now is the ideal time to make any changes to your account with the Government of Canada. Verify your address and marital status and enrol for direct deposit before you complete your tax return. You verify information about you by phoning 1-800-714-7257 or by accessing CRA’s My Account at www.cra.gc.ca/myaccount. You can also find your RRSP contribution limit and TFSA room there.

I expect that most of my readers are already enrolled for direct deposit. May I suggest that you talk with older family members and even offer to help them enrol, if needed. The government has set up a dedicated website, and provided this fancy infographic:

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Market Outlook Dec 29, 2014

The past week was a very short one for the stock market, due to holiday closures. Stocks rose almost 1% in Canada. This could be the result of tax loss selling, the deadline for which is now past. The momentum for stocks is positive again, and the signal has turned away from bonds and towards stocks for the first time since Nov 21 (five weeks ago). It’s not a strong signal, but it’s encouraging.

The coming week has only one holiday: markets will be closed on Thursday for New Years Day. This week is likely to tell whether the momentum we are starting to see again for stocks (finally) is really or was simply the result of increased volatility. The following week, for those who are superstitious (aren’t we all, in some way or another?) is often viewed as an indication of the coming year. I expect it to be accurate one time in two.

Chinese stocks (FXI), US small caps (IWM) and large caps (SPY) are the most in favour at the moment. It’s interesting to note that gold and bonds have both fallen over the past two weeks, as one would expect when interest rates and stock prices are rising.

Market Outlook December 22, 2014

Merry Christmas! It’s a few days early, but I won’t be writing again until after the holidays. Let’s just take a moment to remember that Christmas means more than what we own, and certainly more than what we get. It’s a feeling of kindness and compassion and, in my case, the smiles on children’s faces. So enjoy it, however you choose to celebrate.

The stock market, certain segments more than others, had a good week last week. Canadian large caps (XIU) rose by 5.16%, making up for a portion of the recent losses. (There’s still 3.39% to go for that.) Bonds still hold the advantage when comparing momentum and I’m not convinced it’s time to pile back into stocks.

In fact, comparing various asset classes, gold (IGT) appears to have the best momentum, although I don’t expect that to last long. I was surprised to see that the US market seems to have bounced back, especially small caps (IWM), followed by large caps (SPY). That bodes well for the new year.

There aren’t many stocks in the TSX 60 that look attractive at the moment, but one could look at Talisman Energy (TLM), Metro Grocery (MRU) or Valeant (VRX). In the US, Lowes (LOW), CVS (CVS) and Amgen (AMGN) could offer opportunity. (Full disclosure, I don’t own these and am not buying stocks at the moment.) As always, do your homework.

Market Outlook Dec 15, 2014

The sky is falling. The US stock market finally suffered similarly to other markets around the world and dropped precipitously. The only assets that are looking up are gold and bonds. That is a very bad sign (in the short term). As a side note, small caps (as could be expected) are doing worse than anything. I noticed a while ago that small caps were “cheaper” than large caps and bought in. Now I hate my stocks.

For the near future, bonds are the place to be, when compared to any other asset class. I no longer expect a Santa Claus rally, and I expect this rout will last (in Canada, at least) until oil prices look prepared to recover. This may be a general correction of the previously optimistic outlook to a stance of greater pessimism. Animal spirits, what?

Market Outlook December 8, 2014

Last week was not a good one for investors. Stocks fell by 1.5% and bonds fell by 0.5%. This week appears to be off to a rough start, and may be no better. My view of the market indicates that this will not be a good week to be invested in stocks. Which is unfortunate for me, because I don’t always take my own advice (I’m invested in stocks).

Amongst the various markets and asset classes that I compare, the Chinese stock market (FXI) has taken the lead. Other indices that have a positive outlook include European stocks CDN$ (XIN), US large caps (SPY) and small caps (IWM), gold (IGT) and bonds (XBB). When gold and bonds present good momentum, it doesn’t bode well for stocks.

Market Outlook December 1, 2014

Well, that was not a fun week to own stocks. Small caps were particularly painful (from experience), large caps didn’t do very well in Canada and even gold fell. US large caps (SPY) continue to carry the day. Bonds also rose while interest rates fell. Momentum has shifted from stocks (which I thought were improving) back in favour of bonds. I would maybe not act immediately on this new signal, but stocks could produce a rough ride over the next couple weeks. I’m buckling up and shutting my eyes tight until next week…

Market Outlook November 24, 2014

Inflation jumped higher last week. Actually, it was last month that the increase took place, since the measurement is not only backward-looking, but it is delayed. Inflation for October (year-over-year) was 2.4%, an increase from 2.0% in September. That’s not too much higher than the Bank of Canada target, so it probably won’t result in policy or quantitative tightening. But it does indicate that the economy has been heating up, which is a nice change. Besides August, the last time the reading from interest rates and inflation was this robust was in June 2012. It’s nice to think that this might indicate the return of economic strength.

Stocks were positive for the fifth week in a row, rising 6.97% over that time. Just to clarify, I’m referring to Canadian large-cap stocks, using XIU as a proxy. That doesn’t quite make up for the correction, as they’re still down 2.17% below the level in mid-September. Small caps are faring worse, but I still believe that stocks present a better outlook than bonds. Between the various asset classes, US large-caps (SPY) still have the advantage.

I sold my momentum stocks to buy a stock that I know and have a long history with, that’s been beat up. I’m betting that it will recover, and will pay me a nice dividend in the meantime. For the moment, however, it feels a little like catching a falling knife, something that I’ve experienced more often than I’d like to admit.