In the Sunday Reads we’ll look at the expected path to rate cuts in Canada. The most aggressive estimates have the Bank of Canada down to 2.75% in 2025. We’re currently at 4.5%. There is also the likelihood of rate cuts in the U.S. in 2024 due to some softer economic reports this past week. We’ll look at a chart that shows how stock markets react to rate cuts south of the border. Those economic reports rattled stock markets, but bonds did their thing, rising to the occasion. Yes, the balanced portfolio is back as I have suggested. We’re looking at the path of rate cuts on the Sunday Reads.
But we’ll start with this, the Canadian economy has a pulse sort of …
Gross domestic product (GDP), which measures the value of goods and services for a specific timeframe, rose by 0.2 per cent in May after a 0.3 per cent increase in April, according to Statistics Canada.
That’s better than expected news, but real (reflecting inflation and population) GDP growth is not happening.
Now onto those rate cuts in Canada. Here’s a fascinating chart on Canadian home price affordability. Home buyers need lower prices and lower borrowing costs.
The path to 2.75%?
And here’s the potential rate cut path to 2.75%. These are the estimates from each bank.
And the history of rate cuts in the U.S. over the last few decades, looking at the duration and pace of rate cuts, and economic impact – from Visual Capitalist. That is a fantastic presentation. VC is a good follow.
And what happened the first year after the first rate cut in the U.S.
That looks like a coin toss, with ‘average’ meaning not much at all. Rate cuts are no match for a recession.
Market jitters south of the border
This past week the Fed held rates and the markets got the jitters due to fears of economic weakness. That’s funny, the market makers forgot why rates are cut – to stimulate a weakening economy. There was some weakness in jobs reports.
The broader market continued its retreat this week, as the S&P 500 fell 2.5%, with losses in three out of five sessions.
Big tech names moved the markets. The tech-focused Nasdaq Composite had a bigger decline of 4.3% as many companies released their Q2 reports that disappointed investors.
Here’s a summary graphic from MoneySense.
Bonds rose to the occassion. Last October I wrote how I started building up the bond positions in my wife’s portfolios as the Bank of Canada went on hold. I’m guilty of some bond market timing 😉 The bond markets (US and Canada) are up about 9% from that time.
From July to date, here’s U.S. market (AGG) and longer term treasuries (TLT) …
There is very likely much more of this to come if the rate cut cycle accelerates in Canada and begins in the U.S. And I am also happy with my U.S. defensive stock wall …
Defensive stocks working in concert with cash and bonds and gold is a consistent retirement theme on this blog. And that’s how I ‘go at it’.
Also on the earnings front:
Intel (NASDAQ:INTC) plummeted nearly 32% in the week after the chipmaker reported weaker-than-expected Q2 earnings, suspended its dividend starting Q4, slashed capital expenditures and said it would lay off over 15% of its workforce.
Nvidia (NVDA) was down nearly 6% in the week after it became the target of a U.S. Department of Justice probe into anti-competitive practices. Create a sub sector and you get charged with dominance, too ‘funny’.
My favourite oil stock (CNQ) had a very solid quarter and will return 100% of cash flow to investors. Canadian Natural Resources showed earnings per share of $0.80 (versus $0.66 in Q2 2023). Revenue of $9.05 billion (versus $7.89 billion a year earlier).
Here’s a good Twiter link report on CNQ thanks to Vancouver Island Guy.
Apple cut in half as the Nasdaq corrects
Here’s a good bullet point summary of the week courtesy of Genevieve …
A quarter trillion cash pile
Those homemade Apple dividends greatly increased the Berkshire cash pile/hoard. Now over a quarter of a trillion dollars!!! Yes, you read that right.
Here’s a chart on that massive Berkshire Hathaway cash pile.
Mr. Buffett could buy Nike (NKE) and BlackRock (BLK) and still have tens of billions left for some other shopping. But of course, Mr. Bufett will likely wait for sale prices.
I have long suggested Berkshire Hathaway as a must for those who build their own stock portfolio, especially retirees. In this post from last Fall – Buffett beats as stocks retreat showed the recent outperformance. The outperformance has accelerated in 2024. It is by far the largest position in my wife’s accounts.
It was a normal week
Remember these corrections are expected and ‘normal’ behaviour for stocks.
The most repeated words on this blog – get an investment plan and stick to it like glue.
If you want a hands-off approach with advice, financial planning and low fee ETF portfolios – check out Justwealth.
U.S. stocks laugh at inflation over the longer term
Keep in mind that stocks don’t like high and unexpected inflation, but when things are running cool to warm, stocks make inflation look like a passing concern. More on that below.
More Sunday Reads
Banker on Wheels includes a sensible look at short term vs long term bonds from Morningstar.
Here’s the post, that suggests the risks of hoping for excessive rate cuts is not worth it. Authors point to the benefit of taking the easy road with ultra short and short bonds. If a Canadian investor were to play that middle ground they might look to CBIL.TO and the bond market – XBB.TO. CBIL is cash-like and protects money for short term spending needs. The bond market ETF XBB will offer some convexity – an inverse relationship to stock market declines.
All said, I don’t mind a modest position to longer bonds. They have more torque.
Also in the Banker post a look at 22-year rolling (real inflation adjusted) returns for U.S. stocks. It’s no surprise that the lowest returns came during a period of high inflation – the late 60s and into the early 80s. As readers of this blog know, stock markets don’t like high and unexpected inflation. There are 10 and 15 year periods in there with negative real returns. I like holding some dedicated inflation fighters such as oil and gas stocks and a diversified basket such as the Purpose Real Asset ETF – PRA.TO.
At Tawcan, Bob looks back at 10 years of blogging in the investment space. As Bob writes, most bloggers come and go. It’s a difficult journey making a blog work. And there’s no money in the venture for most.
Cut The Crap Investing was launched in 2018.
At Stocktrades the top technology ETFs to buy in Canada.
Die with zero
Here’s Jonathan Chevreau’s review of Die With Zero, an interesting financial planning concept worth considering.
The week in review from Dividend Hawk. Included in the earnings summaries, one of my favourite growth stock holdings …
QUALCOMM Incorporated (QCOM) Announces Third Quarter Fiscal 2024 Results; QCOM reports third quarter Non-GAAP EPS of $2.33, 25% above last year’s result and $0.07 more than expected. Revenue grew 11.9% to $9.39 billion, topping estimates by $170 million. For Q4 Management guides revenue in the range of $$9.5B-$10.3B and Non-GAAP EPS of of $2.45-$2.65.
Also in the mix, two popular Canadian stocks …
Safe withdrawal rates
I recently looked at an incredible chart showing 4%, 5% and 6% withdrawal rates from 1994 – creating retirement income from your portfolio.
On Findependence Hub, here’s a reprint of a very good post from Kyle Prevost. Kyle looks at the 4% rule, your retirement number, potential problems with the 4% rule, the effect of fees and includes a very good chart on sequence of returns risk.
Beware that dopamine cartel
Here’s a very good post from Fritz at The Retirement Manifesto.
Dopamine can provide an intense feeling of reward …
But what happens when something that is intended for good is, instead, manipulated for less honorable purposes?
Addiction is killing our culture and making us very unhappy and even angry all too often.
A chart in that post shows the U.S. in the greatest freefall on the happiness scale.
Leave your phone at home and spend more time enjoying nature and the great outdoors. I never take my phone for my walks, hikes and rides and workouts on the breakwall at the beach. Read a book in old-fashioned paper format. Stare at the lake or ocean or trees, not your device.
When I go on Twitter (too often at times) I can feel that the algorithm is tying to make me angry and engaged. Refuse as best you can.
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And here’s a Twitter thread to share on iShares XEQT asset allocation ETF.
Monday Morning Update
Thanks to Genevieve for this update as the markets appear set to go into some form of ‘panic mode’.
This is pure silliness from the market makers. And it appears that traders (not investors) may be amplyfying the selling.
And Preet offers more details on that market event and why we stay the course.
Don’t follow the market makers and certainly don’t let them manage your money, ha 😉
Cut the crap investing friends …
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Great content as usual. Thanks.
On “DIE WITH ZERO”, I am not planning on dying but I figure sooner or later it will probably happen. And the older I get the sooner it will probably happen. So don’t worry about the bank account unless you are already broke. In that case you may need to worry about something else like where do you sleep tonight.
More than most likely if you are reading these posts you will be leaving something to the next generation.
HMMM! Wonder what happens if we reach singularity by 2030? will money no longer matter?
Too many conjectures, paths, opinions. ENJOY LIFE while you have it
RICARDO