Market Outlook March 30, 2015

Stock market outlook: not that great. I am seeing a lot of volatility, which doesn’t bode well. Investors don’t like volatility, and tend to respond by moving to safety. Interest rates have risen a little, but the economy still does not look strong. Man, this correction that began in 2008 is sure dragging on!

European stocks still have the momentum advantage. Having said that, they don’t have a great deal of momentum. Not to mention that my model, while performing quite well over 14 years, has recently shed a lot of value. It peaked on May 7, 2014 (beginning with a backtest going to Jan 1, 2000). In the ensuing year, it has lost about 30%. It has been very volatile, but never to this extent, especially when the TSX 60 was relatively stable.

In US stocks, WAG, UNH and BMY still appear relatively attractive. LOW has dropped off and been replaced by TGT.

In Canadian stocks, only VRX looks really attractive, and that comes mainly from a price spike in late February. Lately, the trend has been downward (or reversion to the mean).

Market Outlook March 23, 2015

Interest rates have fallen again. Normally I would suggest that bond values are higher, but this time I’m going to point out that interest rates are volatile. The economy is less predictable than usual and optimism does not appear to be high.

The asset rotation model continues to favour XIN. Either European stocks are doing well or the Canadian dollar is doing badly (or both). But I don’t trade currencies, so I’m not really interested in which it is.

Canadian stocks that look appealing include VRX, BAM.A and AGU.

American stocks that may be profitable in the short term include BMY, MAG and UNH.

Market Outlook March 8, 2015

Interest rates have bounced back up (a bit) from rock bottom, where they were last week. As a result, bond values fell. China also fell, right when I thought it was an attractive buy. Ouch! It looks like it’s back to holding European stocks (XIN).

Some American names that look promising, along with those I mentioned last week, include UnitedHealth Group (UNH) and Bristol-Myers Squibb (BMY).

Canadian names from last week also remain attractive, but now include Brookfield Asset Management (BAM.a).

In other news, the Apple Watch announcement is today. I’m not buying one until it’s suitable for swimmers.

Market Outlook March 2, 2015

Interest rates are extremely low. Total inflation has fallen to 1.0%. That’s the very bottom of the Bank of Canada’s target range for inflation (1%-3%). This is when they start to think about doing something to boost the economy. I was even more surprised by real return bonds, which have fallen to 0.05% annually. They pay (virtually) no interest! That’s not a vote of confidence in the current investment environment.

Over the past four weeks, stocks have shown an advantage over bonds in comparing their relative momentum. However, the lead is slim, and I’m not prepared to guess that it will necessarily remain.

Comparing various asset classes, Chinese stocks (FXI) have surged lately, and now have the advantage. Others have been volatile, but US stocks (IWM, SPY) continue to show strength. Bonds remain positive, but not strong, and gold has turned negative, so it doesn’t appear to be time to hunker down. The next few weeks are likely to be bumpy, but tolerable.

In the US, Lowes (LOW), Disney (DIS) and Walgreen (WAL) still look good, along with Home Depot (HD). Is it home renovation season?

In Canada, Valeant (VRX) experienced a huge jump about three weeks ago, which distorts the momentum. Agrium (AGU), Talisman (TLM) and First Quantum Minerals (FM) all appear attractive. Can you imagine, resource stocks in Canada?

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:

26360_PEWGSC_DD_Enrolment_infographic_EN_v2

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.