Stock markets in North America and around the world had a fantastic week. While a bit sticky, inflation is heading in the right direction in Canada and the U.S. The economies appear strong enough as the consumer and employment holds up. There is the hope that central bankers are at or near the end of the rate hike cycle. Stock markets are pricing in a soft economic landing. The markets are chugging along on the Sunday Reads.
Earnings season kicked off south of the border and Kyle at MoneySense has you covered.
Pepsi (PEP/NYSE) was one of the stars of the week.
Pepsi earnings give shareholders a sugar rush
Beverage and snack behemoth Pepsi posted an earnings beat on Thursday. (Figures in this section are in U.S. currency.) Earnings per share came in at $2.09 (versus $1.96 predicted) on revenues of $22.32 billion (versus $21.73 billion predicted).
Decreased beverage sales volumes were more than offset by raised prices, and Pepsi executives shared that volume was actually higher than expected, due to low global unemployment. Consequently, the company increased its full-year revenue and profit projections.
I own Pepsi. For a year or two I have been writing that I wish I had taken Pepsi and Walmart (WMT/NYSE) to a 10% total portfolio weight each, when the stocks were at sensible valuations. They are part of the defensive sector holdings. As this post shows, defensive sector ETFs and stocks can peform better than a traditional balanced portfolio.
Defensive sectors for retirees.
I like the idea of being overweight to defensives, working in concert with some bonds and cash. And that is for retirees and those in the retirement risk zone.
Another rate hike in Canada
The bank of Canada went another 0.25%, bringing rates up to 4.75%. Kyle provided this chart …
The rate is now 5%, and the highest it has reached in over 20 years.
On the positive side of things that leads to more and more GIC rate hikes at EQ Bank. Your cash can work very hard in 2023 and beyond (lock in a longer term GIC).
While higher borrowing costs creates economic stress for consumers and businesses, the negative effects are still moving in slow motion. The consumer is hanging in there. In fact from this wonderful post – when will rate hikes start to bite? we see that many Canadians are still flush with pandemics savings.
Here’s the rolling in cash graphic.
This is a key sentence in that post, and perhaps sums up the current state of affairs, and future for rates …
At the very least, persistently high core inflation increases the chance that interest rates will remain elevated for some time – not good news for the growing number of people who have fallen behind in payments on installment loans, car loans and credit cards.
That is likely a good guess, that rates will remain elevated for quite some time. At least into 2024 and perhaps beyond.
New bus driver
Also, inflation is moving in the right direction and perhaps we have a new bus driver.
It’s all about employment, or make that unemployment. The economy will not show real cracks until money is taken out of pockets by way of job losses.
Of course the Bank of Canada would love to see inflation come down to the 2%’ish target, while not hurting the consumer “too much”. They’re are hoping for an economic soft landing. That is possible.
Many economists predict a soft recession. But these predictions have been hard to get right. Most everyone has been fooled by inflation and the strong labour markets in Canada and the U.S.
South of the border, Steve Eisman of The Big Short fame suggested …
“The data is still very, very strong. The Fed keeps raising rates; it hasn’t had an impact. Until it has an impact, we’ll keep chugging along,” Eisman said.
And the markets are moving higher, reminding us that we can’t guess when it comes to the direction of stocks.
iShares XGRO, the balanced growth model of the iShares asset allocation ETFs is looking to move to new all-time highs.
The markets have fooled everyone in 2023 …
Investors should develop an investment plan, and stick to it like glue. In the accumulation stage that means adding money on a regular schedule. Remove emotion and guesswork. Get out of your own way.
Put your investments on auto pilot.
Retirees should be ready for most anything and I like the idea of an all-weather portfolio.
The surprising Beat The TSX Portfolio
In all honesty, I thought that when I checked in on the Beat The TSX Portfolio it would look quite ugly for the first half of 2023. After all, many of the big dividend paying sectors are underperforming. But as you’ll see from that post (updated for 2023) the BTSX has offered a slight beat of the markets. The simple high dividend approach did some serious value hunting on a couple of names, heading into 2023.
Dividend Daddy looks at doing some dumpster diving for beat up Canadian stocks.
Dan at stocktrades.ca delivered a very good video on evaluating telco stocks and other capital intensive businesses …
More Sunday Reads
At My Own Advisor Mark asks if Fat FIRE is realistic. FIRE is an acronym for Financial Independence Retire Early. In that post Mark will take you through the various FIRE framings. Essentially it is younger folks giving new names to early retirement and semi retirement. Mostly a sales tool for many American bloggers selling a dream as they try to get rich off of their blogs, ha 😉
Dividend Hawk is getting busy as earning seasons heats up. You’ll find earnings summaries and the headlines and posts of the week.
Bob at Tawcan offers some random thoughts on the markets.
Nope, we are not doing anything differently. Also, we aren’t holding more cash just because the market is more volatile. We continue to save every month and invest regularly to take advantage of dollar cost averaging whenever we can.
It’s nice to see an investor sticking to his plan and sharing that success story.
Banker on Wheels is also on FIRE this week – it’s the fat FIRE guide to a luxurious retirement. As always, you’ll find a very nice collection of reads, videos and podcasts on a range of subjects.
At Findependence Hub, Vanguard suggests Canadians should raise global stock exposure to 70%.
Why investors choose dividend stocks
From Our Financial Life looks at why many investors choose dividend growth stocks.
I would take issue with points 3 and 5, but it’s a good read. Here’s a look at the tax efficiency of Canadian dividends.
Certainly that efficiency can be considered when developing the retirement cash flow plan. That said, an investor with a financial plan and optimized cash flow plan/projection would not exclusively live off of the dividends. Tax efficiency would required the selling of shares over time in certain account types. Plus, in many cases most of the value of a holding is ‘trapped’ in the share price. We have to sell shares over time to unleash that retirement income.
Happy retirees
At The Retirement Manifesto, Fritz looks at why 72% of retirees are happy.
From that very good post …
The 9 traits I’ve discovered that differentiate happy vs. depressed retirees are worth considering as you work toward your ideal retirement. To summarize:
- Having at least $500,000 in liquid assets
- Having your mortgage paid off
- Having multiple streams of income
- Curiosity
- Purpose
- Social Connections
- Retirement Timing & Reason
- Personal Health
- Planning For A Happy Retirement
In retirement we need a solid financial footing (and plan), a life plan and purpose in life at the core of a happy retirement.
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Hi Dale, I’m a Canadian non-resident so don’t have access to GICs offering over 5%.
So I have my Canadian cash invested in CASH.TO-Horizons High Interest Savings ETF. However CASH.TO is yielding slightly less than 5%. Is there another investment that you can recommend to invest and park cash that yields what the GICs are offering now, which is over 5%
For my USD cash I am invested in HSUV.U.TO which is yielding over 5% and reinvests dividends rather than paying them out, which I also like.
thanks, Curtis
Hey Curtis, you can look to Horizons ultra short term treasuries CBIL and UBIL.U
Or VUSB? SEC Yield 5.44% iShares ICSH
As you’re in the U.S. you can look to the short term bond and floating rate ETF world.
Dale