The stock markets mostly don’t care about what have you done for me lately. It’s more about what are you going to do for me next year? The pandemic gave a wonderful example of how the stock markets are forward thinking. Now certainly in the pandemic, we noticed that the stock markets are ridiculous at times, silly even. The markets were optimistic early in the pandemic even when there was nothing to see. Pre-vaccines the future was more than cloudy; no visibility as they say. Some visibility eventually returned (at least analysts could take an educated guess), and markets responded in a more sensible manner. And now as things improve and we move to the other side of the pandemic, we may already be eyeing the earnings peak – on Sunday Reads.
U.S. stocks hit a new high this past week.
Based on what new stimulus you ask? 🙂
U.S. President Joe Biden’s embrace of a $1.2 trillion infrastructure spending deal has injected new life into the markets, boosting them to fresh new highs. The old and existing stimulus wasn’t quite doing it for the past couple of months. In fact the June 18th price for the S&P 500 was the same as the price in mid April of 2021. A booster shot was required.
And waaaay more returns to come say investors.
This post on the irrelevant investor suggests – prepare to be disappointed if these are your projections. Survey says! – dream on.
At least Canadian investors are only 120% above what the pros say we might get – about 5%. 😉
And of course, Canadian stocks are much more highly rated these days compared to U.S. stocks. As I put in my latest MoneySense post, this is the cheapest Canadian stocks have been relative to U.S. stocks since the dot-com crash in the early 2000’s.
That stock market crash led to the lost decade for U.S. stocks.
Check out that MoneySense weekly. That post goes over what the heck is a taper tantrum? That phrase might be in the news quite a bit in the coming months and years. That post also looks at ‘what the heck is going on with bitcoin?’
We might be at earnings peak
And back to that earnings peak ‘stuff’.
Here’s a very good video on the TD investment site. Yes investment commentary is part marketing, but that does not mean that you won’t find good ideas and analysis. In this post and video link TD Chief Wealth Strategist Brad Simpson suggests that we’re at the peak earnings growth rate.
That’s not to suggest that earnings have peaked, but that the rate of change has likely peaked. That earnings peak rate of change will likely show itself in the quarterly reports for the quarter ending June 30. We’ll get lots of great news on the earnings front.
Of course, no one knows what will happen short term with the stock market prices. Investors might cheer the good news. They might also look to the next few quarters and say ‘ya but you’re not going to beat that second quarter growth’.
From Reuters post …
As business rebounds from the coronavirus pandemic, the second quarter is also expected to mark the peak for U.S. economic and corporate profit growth, which could bring market unease as growth slows.
Keep in mind that the commentary is directed at the U.S. market. In Canada we have a lag due to a delayed economic opening compared to our friends south of the border.
I’ll be sure to keep an eye on peak growth rates for Canada, as well.
All said, the markets will have the final say. But after the next quarterly reports, U.S. companies may not be able to top that act. And maybe we’re due for a little correction. From that same Reuters post …
Some investors also believe the S&P may be overdue for a significant pullback. Since World War II, the index has had a decline of at least 5% an average of every 178 calendar days, according to Sam Stovall, chief investment strategist at CFRA. The latest market advance has lasted 275 days without such a fall, the longest period since January 2018, when a 715-day advance was followed by a 10.8% drop for the S&P 500.
Canada is looking rosy.
In the Globe and Mail (paywall) BMO CEO Darryl White offered that we’re likely to experience very good growth over the next two years.
Mr. White now believes a roaring two-year rebound is beginning, with GDP growth estimated to be roughly 6 per cent in Canada and 7 per cent in the United States this year, followed by 4.5 per cent in both countries next year. Some of that is catching up on lost ground from the crisis. Meanwhile, hundreds of billions of dollars of extra deposits have built up on bank balance sheets, waiting for opportunities to be spent.
Canadians socked away an impressive $212 billion last year, versus $18 billion in 2019, according to Statistics Canada. That works out to $5,574 per Canadian on average in 2020, compared to $479 in the previous year. The average savings rate jumped from 1.3 per cent of disposable income in 2019, to 14.9 per cent in 2020.
And Canada’s resource sector might pitch in, big time. This from a Scott Barlow (of the Globe) tweet.
Resources to gush with profits?
Canadian oil and gas stocks are rated top of the heap for future free cash flow prospects. I’m happy to own those oil and gas producers in a couple of accounts.
Of course the good times want to roll for the economy and for company earnings in many sectors. The wild card as always is the virus. And the virus has learned how to pivot as I covered in that MoneySense post. There are great worries that the variants of concern will postpone the economic opening in the U.K. and across Europe.
Cases in the U.K. are increasing at a worrisome clip. Hospitalizations are starting to creep up as well. This is our first pandemic rodeo. What will be our tolerance level for sickness and death as we live with COVID? You might have noticed that even though we appear to be getting to the other side, the virus ain’t going anywhere.
The U.K. is our canary in the COVID coal mine. We can look to the U.S. as well, as their vaccination campaign has mostly stalled. As expected we are seeing pockets of minor outbreaks in the U.S. Almost all of those who die in the U.S. are not vaccinated.
I checked in with Dr. David Graham on that event, on Twitter.
You’ll find his answer in that link, but here’s the text.
Sure we could have some local hospitals get busy but no reason to expect regional epidemics given what we are currently seeing.
On this site I covered Dr. Graham’s book …
Have a read of that post, and book, if you’re wondering why COVID cases plummeted when vaccination rates were only in the 40% area.
My guess is that Canada will have a great Summer. We are leading the developed world in vaccination levels. We are still vaccinating at an impressive rate.
Canadians are setting an example for the world, and perhaps offering another COVID response lab to study and analyze.
More Sunday Reads
You’ll find some very good links in Mark’s Weekend Reading on My Own Advisor. That’s the financial stress index edition.
On The Financial Independence Hub, financial knowledge of Canada’s retirement system is not improving.
Related must read: The Purpose Longevity Pension Fund.
The more I know, the more I like about that retirement tool. I’ll be back with a follow up post. It appears that the sweet spot for many retirees would be a 30%-40% portfolio weighting of the Purpose fund.
In last week’s post building the $8 million portfolio, we looked at a Canadian investor who has built a massive portfolio and $360,000 per year in annual income (before taxes). The example and investor is from a Tawcan blog post.
Post B on Investor B
This week, Bob at Tawcan followed up with post B on Investor B. I also included that story in my weekly Making Sense of the Markets.
On GenYMoney a look at cash back credit cards in Canada.
We continue to use the Tangerine Cash Back credit card. We make in the area of $50 to $70 every month on everyday spending. Tangerine currently has some short term promotional offers on that card. That said, the core offering is very good. There are no fees for that card. Make every penny count. Make the banks work for you.
For savings accounts we use EQ bank.
On Savvy New Canadians Enoch has a look at alternatives to the Robinhood app that is not available in Canada. Largely on the app front you’re looking at Wealthsimple Trade. I’ve watched my son use that, and it is very good for what it does and offers. An investor could build the beat the TSX portfolio with no trading fees.
On the same subject the top trading apps on Million Dollar Journey.
On the stock portfolio front it’s trains, telco’s and banks on Passive Canadian Income.
Stocktrades asks what is the better telco stock, Telus or Bell? I’m gonna say both, and continue to invest in both.
Here’s a good related post, investing in Canadian telco stocks.
We’re running with Nike.
Nike delivered incredible record numbers this week.
The stock shot up over 15% on Friday. Before the markets opened I put in a limit trade to sell a few shares. All part of the ongoing portfolio rebalancing act.
I’d be happy if U.S. stocks continue to surge. I’ll continue to trim, though we are still in that Balanced Growth portfolio model.
Support your portfolio and Cut The Crap Investing.
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You will also earn a break on fees by way of many of those partnership links.
I also have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio ,Wealthsimple, Nest Wealth and Questwealth from Questrade.
Consider Justwealth for RESP accounts. That is THE option in Canada.
At Questrade, Canadians can buy ETFs for free.
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 1.25%. You’ll find some higher rates on certain GICs. They now also offer U.S. dollar accounts.
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Dale
This a super timely piece! Thanks for taking the time to write it. I do think there is definitely something to be said for the advice of “being cautious when others are greedy and greedy when others are cautious”. I think that this article summarized that fairly well! I’ll definitely be following along with new articles as you post them