There’s a common event I keep witnessing. Everybody’s guessing. And that is, the stock markets and bond markets keep guessing and take the liberty to change their mind(s) as well. We’re in an economic transition period. And we simply don’t know in which economic regime we will land. But the markets keep guessing based on backward looking earnings reports, or forward looking guidance from companies. They look for individual inflation data points or economic signs and place their bets and move the markets. Everybody’s guessing on the Sunday Reads.
The stock markets are staging a bit of a recovery “rally”.
Decent earnings are offering some optimism. And there’s hope that the Fed won’t have to deliver a 1% rate hike, as recently experienced in Canada.
Bonds are recovering modestly as well.
The bond markets are saying/guessing that we might get a recession or ongoing economic weakness. Enough so, that central bankers might have to start cutting rates in 2023. Of course the stock and bond markets are forward thinking, er make that forward guessing. I have no idea who is right. That said I often write that bonds are the adult in the room.
The bond markets must also think that we’ll get inflation under control (enough) or rates would be rising in anticipation of ongoing rate increases, well into the future.
Everybody’s guessing
The key is to be prepared. And in broken record fashion I will repeat that if you’re in the accumulation stage – keep adding. Lower prices are good, and we don’t know if we will get even lower prices.
And sure U.S. stocks might not be ‘cheap’ …
And where she stops, nobody knows.
But we can see the author of the Tweet guessing about a quick bounce.
And more perspective on corrections.
I found this in the Globe & Mail this week …
The price-to-sales ratio says Canadian shares are only offering historically average levels of value. In terms of share prices to sales, they are back to trading pretty much where they have traded for most of the past decade.
If there is any consolation here, it is that U.S. shares again look far, far more expensive. While Canadian stocks sell for about 1.5 times sales, U.S. stocks fetch more like 2.4 times sales, well above their historical average.
If we’re in retirement or near retirement, we might consider a more defensive portfolio.
Real estate eye openers
This week I’ve been working on a real estate and home ownership affordability post for MoneySense. I keep finding stuff like this …
Last week I tabled the cost of rate hikes.
On FiPhysician we have the Fed’s 8-second bull ride.
As these bad times follow eras of extravagant excess (usually marked by easy credit and insatiable corporate profit motive), the Fed is always reacting to ongoing economic data. Just like how a cowboy reacts to a bull.
The economy is the bull; the fed the rider.
But as is pointed out in the post, the Fed is not riding a bull but a bear – a bear market in U.S. and international stocks. And I will add that troubling inflation (long in hibernation but awakened in 2021) is driving the bus. There’s a lot of guessing going on in the markets these days with strong rallies and then strong pullbacks. The thing is, no one knows what will happen with inflation, and the central bankers must kill inflation. The central bankers might be forced to raise rates high enough to cause a recession. Or, they could raise rates and it doesn not have enough of an affect on inflation – we stay in a stagflationary environment. And sure we could get a soft (economic) landing.
But certainly, the central bankers’ moves will be directed by the rate of inflation. Be ready for any scenario.
The all-weather portfolio for 2022.
More Sunday Reads
On My Own Advisor Mark offers the – How to reach financial independence edition.
The week in review from Dividend Hawk. The best stock updates and blog posts for the week ending July 24. You’ll find reports on earnings such as from my JNJ –
Johnson & Johnson (JNJ) Reports Q2 2022 Results; JNJ reports second quarter Non-GAAP EPS of $2.59, a 4.4% increase year-over-year and $0.04 ahead of estimates. Revenue grew 3.0% to $24 billion, topping estimates by $180 million. For FY2022 management expects adjusted EPS of $10.00-$10.10 from prior guidance of $10.15-$10.35, revenue of $93.3B-$94.3B from prior guidance of $94.8B-$95.8B.
I’m happy to hold JNJ as part of the front line defense. Have a read of …
The defensive sectors in the U.S. market.
There’s a host of good reads this week on Jonathan Chevreau’s Findependence Hub – including (and speaking of defense) – How low volatility ETFs can help in this environment.
On Cut the Crap Investing – A look at BMO’s Low Volatility ETF and mutual fund.
I really like the nuclear theme. On stocktrades.ca here are some top Canadian uranium stocks.
Early retirement strategy
On Tawcan, Bob looks at his early retirement withdrawal strategy. We see that Bob might have more questions than answers. That’s why it is very important to seek help. Self-directed investors might consider an advice-only planner.
Also, check in with our friends at Cashflows & Portfolios.
Mind-blowing stats
Here is 8 mind-blowing financial stats. That’s a great read and includes, coming in at number one …
Only 42% of stocks over their entire lifetimes provide a higher return than one-month Treasuries, and more than half provide negative lifetime returns”
Think about this, 1 of every 2 stocks has a negative return.
That makes the case for broad-based index ETFs of course. And I am certainly a fan of that approach. That said, it is not difficult to build the simple stock portfolio. From our U.S. stocks selected in 2014 (and well before for Canadian stocks), only one company is in a negative position. And that company has solid earnings and delivers a very genrous dividend – Walgreen’s (WBA).
We see cautious and revised earnings and revenue estimates being reduced. Slowing economic growth presents headwinds. Also for U.S. companies, the strong U.S. dollar reduces foreign earnings. For example, one Euro of earnings at par with the U.S. dollar (recent scenario) is worth less than a Euro that is $1.20 per U.S. dollar.
Making sense
You’ll also find a stock round up on MoneySense as Kyle makes sense of the week. Kyle looks at Air Canada and their ongoing troubles and poor service record.
Our friend Deane is whalin’ …
And here’s a band you need to check out – My Son the hurricane. Sorry, I had the name wrong in the Tweet. Ha.
That’s a live show experience – a visual and audio assault. I love the horns (several), you just don’t see that much in bands these days.
Check them out … https://www.msthofficial.com/
And getting ready for tomorrow in the markets …
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I just want to point out that the chart showing the US S&P 500 CAPE is out of date. I looked it up, the current S&P 500 CAPE is sitting at 20.02.
That doesn’t take away from the point of the tweet though.
Using CAPE (or even just the PE) would show any experienced investor that valuations have just fallen back to ‘average’ and we could still see plenty of downside in the US and Canada.
I’m not guessing yet, I’m still waiting.
Lastly, I like the humpback whale pic. My wife and I had an experience a couple years in Cabo San Lucas with humpbacks. I have a 2:00 video with 7 humpback breaches. Unforgettable.
Have a nice weekend Dale.