In an unusual occurrence, stocks and bonds both lost value over the past week. The stock market average dropped by around 1%, while at the same time interest rates rose and bond values fell. With interest rates going higher and the most recent inflation numbers very low (0.7%), it is apparent that policymakers are not using rates to slow an economy that is overheating. Quite the opposite, as it looks like the economy continues to be very slow.
Even though they’ve lost some of their advantage, the momentum of stocks continues to outpace bonds. While stocks have the advantage, Chinese stocks (FXI) appear to be particularly well positioned (in USD$) and emerging market stocks (XEM, in CDN$).
Stocks didn’t have a very good week. Monday and Friday were positive, but couldn’t overcome the steep slide on Tuesday. Looking a little further back, stocks had three really strong weeks in a row, but have been treading water over the ensuing six weeks. Still, they have better momentum than bonds and still appear to provide better opportunity for continued growth.
US small caps (IWM) have the best advantage, and Chinese stocks (FXI) are a close second. I, however, continue to own Manulife (MFC), which has better momentum than a broad index.
For anyone looking to invest in a company that is relatively large, stable and strong with a relatively high yield, National Bank looks attractive this week. There’s not much to describe: it’s a bank, with retail and commercial banking services as well as investment and pension management. They do what you’d expect a bank to do.
The dividend yield is currently 3.73%, better than 10-year Government of Canada bonds (2.99%). The difference being that NA shares can either rise or fall in value, but over 10 years there seems like a pretty fair chance of growth. Experts are divided on whether or not this present a good value right now. It’s the sixth bank in Canada (after the “big five”), so it’s traditionally been valued slightly lower than other banks. Having said that, it’s done very well over the past five years, by comparison. The other indication that it should continue to do well is that its dividend yield is well above its five year average (2.65%). That could be corrected by an increase in share price.
NA has joined my top five stocks, rated for momentum. The smart money has been buying this, and I expect it will continue to do well for a couple weeks. As an aside, the ticker symbol for National Bank, NA, always makes me smile, as though it meant N/A, no ticker symbol available for this stock.
Bonds rose in price somewhat over the past week. Medium term interest rates didn’t move, but long-term and short-term rates rose slightly. That should have pushed bond values down, but it’s possible that increased demand kept the price up. It seems a little strange, though, given that the stock market has started to rise and the economic outlook isn’t particularly strong. To be fair, the economic environment is supportive of expansion, with low interest rates and low inflation. That’s looking backward at recent data, while the stock market is forward-looking. It seems more and more likely that the stock market will continue to rise throughout the next couple months.
A balanced portfolio would benefit, given all appearances, from an overweighting in stocks. Bonds aren’t currently dragging it back, but they’re not helping as much as stocks. Bonds have risen 0.70% over the past 2.5 months, in addition to producing 2.99% (annual) interest. Stocks, on the other hand, have risen 6.67% over the past 2.5 months.
The US market continues to benefit from the strongest tailwind. US large caps (SPY) have the greatest momentum, followed closely by US small caps (IWM). Fortunately for those of us investing in CDN$, Canadian large caps (XIU) aren’t too far behind. Personally, however, I will continue to own MFC, which has better momentum than any of the market ETFs.
Stephen Weyman blogs at HowToSaveMoney.ca and he’s trying to increase his reach. Consequently, he has decided to give away cash: http://www.howtosavemoney.ca/1000-cash-huge-christmas-giveaway
I almost never write about how to save money. It’s not that I don’t enjoy saving, I just think that my tips and tricks work for me and my family in my situation at my age in my city. I’m not sure how useful that would be to other people.
But Stephen’s website appears to be filled with good ideas. They won’t all work for you, but if you find one that’s useful, that makes the visit worthwhile, doesn’t it? I wish him luck to expand his readership, and I wish you (loyal reader) luck to win his draw.
I wrote about Manulife in July, and it wasn’t clear at the time how it would perform in the face of some economic headwinds. Since that time, it has increased 16%. To be fair, it has experienced about the same growth as the market (11%), until the past week.
The reason is that they recently announced earnings that were well above the expectations of analysts. The company appears strong and well managed. They are profitable and poised for growth. That, however, is not a guarantee. The last time I wrote that, in July, interest rates failed to increase the way I expected.
I now own MFC in some of my accounts, in place of an ETF, to benefit from the momentum.
Another company that has recently rejoined my top five is SunLife (SLF). I also wrote about this in July. It has actually lagged behind the market until just this past week. It’s interesting to see the effect of (lack of) popularity, offset by the effect of actual business results.
The market is open today. That will not prevent me from observing a moment of silence at 11:00am.
Stocks put in a positive performance over the past week. At the same time, bonds fell due to rising interest rates. Looking ahead, a portfolio balanced between stocks, bonds and cash would benefit from being overweight stocks, and holding as little cash as possible, as always.
Given that interest rates have begun to rise and that companies are beginning to report their quarterly results, I expect to experience volatility in the market. Investors will adjust their outlook and their valuation estimates to match the financial results, and stock prices will move accordingly. It appears, so far, that more companies have been successful than unsuccessful. The economic outlook seems to be relatively positive.
Comparing the asset classes that I track, US large-cap stocks (SPY) continue to have the best momentum, followed closely by Canadian large-caps (XIU). I will continue to own a single large-cap stock, rather than an ETF, because the momentum is even better. I’ll write about my trade on Wednesday.
Thomson Reuters (TRI) is an information company that provides information to businesses and professionals. They produce stock market data, legal databases, science data and intellectual property records, as well as the international news agency Reuters.
They have a new CEO who has been working on consolidating the business segments and turning around the company. The majority of their income comes from the financial services industry, which has not recently been a driver of growth.
The stocks price has experienced an impressive rise recently. Its momentum now places it among the top five stocks of the TSX60. Besides that, it also produces a reasonable dividend and could be purchased as an income investment.
Looking back, TLM fails to impress. I wrote about it on October 16, since which time its price has risen 3.9%. That is certainly a good gain, but it appears to have lost momentum, compared to other stocks.
I wrote about NA on October 9, from which point it has risen 7.2%. That’s pretty impressive, and it still appears to have strong momentum, much better than TLM. I would continue to hold this, if I owned it.
You win some and you lose some. In mid-September, I suggested SU had good momentum. It never went anywhere, and at this point it’s down 0.5%. Not terrible, but not particularly helpful.
After two weeks of extremely strong returns for stocks, last week felt disappointing. But it can’t go up forever, and the market didn’t really slide back much. It was more like taking a breather. The result is very little change to the outlook. Stocks continue to outpace bonds, and US large-cap stocks (SPY) and Canadian large-cap stocks (XIU) appear to be the best positioned for growth in the near future.
Interest rates have fallen slightly. They really don’t look like they could go lower, but I’ve learned by now to “never say never.” Interest rates and inflation rates don’t reflect great strength in the economy, but the stock market is actually a better advance indicator of the economic cycle. Having said that, earning reports are starting to come in, and for the next couple weeks, past results will probably have the greatest effect on the outlook for corporate profits.
Stocks had a very profitable week last week. Bonds also rose in value, since interest rates dropped. Stocks are outpacing bonds, and show far better momentum. A portfolio that is balanced between stocks and bonds should definitely be overweight stocks for the near future. And anyone who has been out of stocks should seriously consider getting back in.
Between various stock markets, US small caps (IWM) still lead the way. US large caps are quickly catching up and, in Canada, emerging markets (XEM) have the best outlook, with the TSX 60 (XIU) not far behind.