The backdrop for financial markets over the last few months has been a near 30% surge in oil prices, higher rates for bonds offering a challenge for stocks and bonds. Of course the traditional balanced portfolio has weakened as well. But as I offered in mid September, long periods of market declines and treading water is par for the course. Those of us with generous allocations to oil and gas stocks have seen those assets offer support. Cash and ultra short term bonds are offering real inflation-adjusted returns. Oil and cash floats the portfolios on the Sunday Reads.
Saudi Arabia and Russia have been cutting crude supplies. Oil prices (even Canadian crude) have been moving up. Our Canadian oil and gas stocks are having a nice run. Bonds, traditionally the main ballast in portfolios, lost between 5.5% and 6.5%, most which has come this past month.
The tech giants have gone into reverse. Gold has lost its shine too meaning that only oil and gas, cash and the U.S. dollar have proved reliably profitable.
Stocks are still up for the year, but the third quarter ended with negative returns in August and September. Defensives continue to lag. Here’s the picture, south of the border.
A rounding error recession?
Canada might enter a rounding error recession. But that could get more serious if we get a housing collapse or recession.
The Bank of Canada has been consistently hiking its benchmark interest rate since March 2022 and it could spell trouble as more long-term fixed rate mortgages come up for renewal, and it could tip Canada into a “real recession.”
Most Canadians expect a recession in 2024, but of course that does not mean that a recession is certain to arrive. That said, consumers take talk themselves into a recession by reducing spending and increasing their savings rate.
And keep in mind that a softer economy was the plan for the Bank of Canada. It can be seen as good news on the inflation-fight front.
The vacant housing picture
I follow many real estate and mortgage broker experts on Twitter / X and there are some early signs of stress. Here’s one example.
Jon suggests that the sellers are largely investors / speculators. Listings are on the rise and properites are not selling. Here was my general take on past corrections in the GTA (Greater Toronto Area) and on the real estate market as a whole.
And yes, real estate has been supporting the Canadian economy.
Keep in mind that market timing in near impossible. But if I was a first time home buyer I would be patient. At the very least, if you do buy you have to ensure that the house or condo can be carried with ease and that you can withstand future rate hikes leading to higher mortgage costs. Leave a lot of wiggle room.
One of my very good friends sold his house several months ago, and is waiting it out – he’s downsizing to a condo. His house purchase money sits in cash of course. The rest of the house sale funds (not needed for condo purchase) are being invested in a sensible stock and ETF and bond portfolio. An initial chunk went into the markets, with ongoing dollar cost averaging.
A genertionoil opportunity?
No I did not slip on the keyboard, that is an intential oil-insprired typo.
Here’s the ‘generational opportunity’ in Canadian oil and gas stocks as per Gurgen Ayvazyan.
More on my favourite oil stock, CNQ …
And IMO …
Are we in the rate cycle home stretch?
From a Morningstar analyst on the Globe & Mail, 7 REITs to consider if we’re in the home stretch of the rate hike cycle.
This is a fair summary from that post.
It is important to note, though, that the possibilities of further rate hikes and continued economic uncertainty still loom, so REITs may experience further volatility. However, high-quality REITs can be a worthwhile consideration as a component of a well-balanced portfolio for long-term growth potential. As always, investors should conduct their own independent research before purchasing any investments listed here.
But one-third of Toronto office space is obsolete accoring to Dream CEO. Profits have left the building in the office REIT sector thanks to work from home. This sub sector is having a reset and a rethink.
Canadian banks returning to growth in 2024?
From Scott Barlow in the Globe …
RBC Capital Markets analyst Darko Mihelic sees the Canadian banks returning to growth in 2024. “The large Canadian banks’ core EPS declined approximately 2 per cent quarter-over-quarter and 7 per cent year-over-year on average in Q3/23, 4 per cent lower than our estimates on average. Lower than expected results were primarily because provisions for credit losses (PCLs) were 16 per cent higher than we forecasted on average, more than offsetting better than expected revenues. For the large Canadian banks under our coverage, we model core EPS to increase 8 per cent on average in 2024 driven by good revenue growth and better expense control. We expect core EPS to grow 5 per cent on average in 2025 … The large Canadian banks’ forward-looking indicators continue to reflect a relatively benign economic landscape. For the next 12 months base case scenario, the average Canada unemployment rate forecast is 5.8 per cent and the average U.S. unemployment rate forecast is 4.1 per cent, relatively similar to last quarter” Among the major banks, Mr. Mihelic has “outperform” ratings on Bank of Montreal and Toronto-Dominion Bank.
Stocks are entering the most seasonably strong quarter, but who knows?
More Sunday Reads
We’re back to the oil theme at the Weekend Reads on My Own Advisor. Where does oil go from here? Mark asks.
GenYMoney is back with 40 financial lessons in 40 years with lessons 21-40. That is a very good series and worth a read or two.
Here’s the week in review at Dividend Hawk.
At Tawcan Bob offers some ideas on how to build the set it and forget it portfolio. My research leads me to believe that whether you build a stock portfolio or ETF portfolio, little maintenance is required. You do not have to watch a sensible stock portfolio that is built for the longer term.
At stocktrades, Dan offers 3 top Canadian healthcare picks. Of course that sector is underrepresented in Canada, so it’s good to get a few ideas. I look to the U.S. for coverage in that very important sector.
At Findependence Hub Jonathan Chevreau says it’s time for a newletter purge.
And there’s another robust mix of reads and podcasts at Banker on Wheels. That includes – is the Fed done raising rates, when to rebalance and winning the stock ‘game’ by losing less. That’s an approach I embrace.
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