This was the Super Bowl for economists, market makers and market watchers. Wednesday was rate cut day in the U.S. and the Fed did not disappoint, kicking off the rate cut cycle with a 0.50% hike (hut, hut). Go big or go home, right? Recent lower inflation reports cleared the opening for Jerome Powell and the Federal Reserve. Weakness in U.S. employment also suggested that the economy could use a boost. Stock markets cheered the call and the 50 bps move. U.S., Canadian and international stocks moved to all-time highs on Thursday.
But of course, the market couldn’t make up its mind. Nervous on rate cut day and then …
We’re best to join the market watchers group of course. Watch for enterainment purposes, but don’t act. Stick to your investment plan. Rate decisions are out of our control. Stock and bond performance is out of our control. What you can control, is your behaviour and the amount of money that you invest on a regular schedule. If you’re in retirement you should already be prepared for whatever the markets and central bankers want to throw at us.
That said, I enjoy watching the markets and sharing my observations and other commentary.
Here’s another graphic on 50 bps rate cuts via Visual Capitalist …
And we should enjoy good times for our portfolios. One of my favourite posts over the last few years is the waiting is the hardest part. We stick to our investment plan and springload the portfolio during the doldrums or declines and enjoy these bull market runs.
Congrats to all who have stayed the course. Keep on keepin’ on.
Boring for the win
At the Globe & Mail Ian McGugan notes that boring stocks are sticking it to the Magnificent 7 growth darlings. From Ian …
If nothing else, the market-thumping performance of these staid stocks shows how the narrative is shifting. A few months back, it was a handful of big tech companies – the Magnificent Seven – dominating investors’ thoughts and driving the market higher.
Boring is beating sexy
Back in June of 2023 I wrote on the incredible tailwinds for the U.S. utilities sector.
Electricity demand grows more slowly in the current measures scenario but still increases by 62 per cent by 2050. That’s a nice little growth kicker for a boring sector.
Bricks beat clicks (nice sub head) …
Folks are so giddy for very good defensive stocks that they’ve propelled them to tech-like overpricing. Ian added that Walmart, after its mammoth run-up this year is trading for 30 times its estimated earnings for the year ahead – a price-to-earnings (P/E) multiple that seems more appropriate for a fast-expanding startup than a sedately growing giant.
Readers of Cut The Crap Investing will know that I fully appreciate defensivse stocks for retirement or for those in the retirement risk zone. I own Walmart. Pepsi is another favourite.
Colgate-Palmolive is a long-time holding in my wife’s RRSP and I had some favourable timing taking CL to a drastic overweight position in 2024. From early in 2024, on CL I wrote …
I really like this company, and stock, and have been topping that up. It is a defensive stock that is not very exciting. But ‘growth’ has picked up in recent quarters. In the last report, revenue grew 6.9% year over year, with expectations of ongoing annual organic growth in the 3-5% range. Fine by me for a defensive stock with ample geographic diversifcation, including emerging markets.
Given the massive run up in stock price and valuation, we’ll sit tight and hold like a card player sitting on Blackjack. I am hesitant to sell defensive winners. I don’t know if that’s the right move or not, but that’s where my thinking is at.
Sectors after the first cut
And here’s an interesting chart on rate cuts and sector performance …
Ian wraps it up with …
How can investors navigate this awkward stretch? They may want to remind themselves that stocks are somewhere between fully valued and very expensive these days by most standard valuation measures. If you don’t like the current valuations, there is nothing wrong with buying bonds or a guaranteed investment certificate. Boring, yes, but effective if stocks – even solid, sensible stocks – hit a rough patch.
Yup, we’re back to the balanced portfolio. For those who need to manage volatility, that’s always the sensible call. Stocks / bonds / cash / gold.
Invest within your risk tolerance level.
GIC rates from June of 2023
It would be a good feeling to have 5 years of income safe and secure in guaranteed investments. I believe the rates peaked out at 5.35% before they started their decline thanks to the Bank of Canada rate cuts.
The above chart is from a June of 2023 post that I had referenced above.
That said, from June of 2023 typical balanced portfolio would be up about 20%. For a defensive approach, a retiree would harvest from the stock and bond portfolio to create retirement income while letting the cash component ride. You’d have solid GIC compounding and you’d reinvest at the rates of the day, waiting for a rainy day.
At EQ Bank GIC rates have come down again this past week. I have updated the following post … Make your cash work harder at EQ Bank.
Oil and gas stocks
Another look at oil and gas stock and index performance.
I’m happy to chip away at my Big 4 favourites in CNQ, IMO, SU and Tourmaline.
More Sunday Reads
Dividend Hawk looks at his dividend haul for the week, plus the stories of the week for his stocks. Hawk closed out struggling BCE.
This past week BCE sold all of its valuable Maple Leaf holdings to pay down debt. It’s still a minor move and the dividend is still not covered. The market did applaud the move. The stock was up over 4% on the news, but the stock price then slid (like Theo Fleury after a playoff game winner) for the remainder of the week.
At Banker on Wheels Ed Yardeni makes the case for the Roaring 20’s. Also in their weekly wrap – how demographics shape economies and stock market returns.
At Stocktrades Dan offers up Canadian stocks for outsized gains. Yes, it’s usually total return for the win.
At Findependence Hub, Robin Powell offers five ways that financial marketing can mislead investors. That’s a great post.
And nice to see the nod to Justwealth, Canada’s top Robo Advisor in that post. You can have it all with advice, financial planning and low-fee ETF portfolios. They are also THE shop for RESP portfolios.
The smart way to invest for the RESP.
Head on over to Tawcan to join them on their trip to Iceland. That looks incredible. My neice has been there and had a wonderful experience. Iceland is certainly on our bucket list.
At Million Dollar Journey, a look at how to build the million dollar RRSP when starting in your 30’s, 40’s and 50’s.
Now that you’ve got your million dollar portflio – how to retire from The Retirement Manifesto.
Tapping Out
And on the retirement front, congrats to the owner and operator of the Tapping Out Early blog. Tapping out at 48.
Stay tuned for some wonderful (adult) financial education from TOE. Hopefully I can get him to offer up a few posts for Cut The Crap 😉 But for a few months, he will enjoy Spain and financial independence.
The 3-year fixed rate for the win?
The 3-year fixed mortage appears to be the sweet spot these days. That said, be sure to know your personal situation and risks. Also, negotiate. A friend was offered a 4.1% 3-year fixed from her bank. Competition for customers might be playing out.
In this post I looked at the rate cut cycle projections from the big banks.
BlackRock is everywhere. One of my favourite holdings.
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Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.0%. You’ll find some higher rates on GICs up to 4.50%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
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