The stock market has been on a fantastic run. Then, in the third quarter, it decided to sit this one out. Rising bond yields, persistent inflation worries and a little less enthusiasm for expensive equities put the brakes on the rally. But this wasn’t a market meltdown, or even a technical correction. Far from it. It was more of a pause, with investors taking a closer look at valuations and rotating toward sectors that can hold their own if rates move even higher. After the gains we’ve seen, a little market humility might not be the worst thing in the world. Maybe it’s the pause that refreshes.
Here’s XEQT-T, it was up 1.14% for the quarter. That’s a global all-equity asset allocation ETF of course.
The 60/40 balanced portfolio (XBAL-T) was down about 0.4% for the quarter. A balanced growth portfolio ( XGRO-T) was up about 0.4% for the quarter.
The Canadian bond market (XBB-T) was the culprit for balanced portfolios, down 3.0% for the quarter. Rates are on the march. Where she stops, nobody knows of course.
Remember, bonds don’t like inflation and higher rates. That said, ultra-short bonds (cash) are totally fine with inflation and a rising rate environment. I had a chat with Gemini and it summarized as …
Given that we don’t know what inflation will do, and where rates will go, diversfication is in order once again. Cash and ultra-short bonds are the place for your emergency fund. Given the timing needs of your cash, you might even consider GICs.
Longer dated bond funds will provide that traditional portfolio ballast if rates stabalize or start to move down. If you manage your own investments, it’s important to know how bonds work.
It’s also time to zoom out
Here’s Canadian equities (XIC-T) over the last 10 years.
Your U.S. stocks would have/should have done considerably better.
The last 10 years offered a mix of the disinflationary times today’s investor is most familiar with. We had the modest inflation ‘scare’ in 2021 into 2022 created by the COVID pandemic. Fortunately, inflation turned out to be transitory, but it stuck around a little longer than most “experts” expected.
Please note: it is impossible to be an expert on inflation. Inflation is completely unpredictable.
Summary: get an investment plan and stick to it like glue.
Canadian stocks in the third quarter
Canadian equities (XIC.T) were up 1.1% in the quarter. Here’s a sector snipet.
The telcos got walloped, not shown. It’s October and it’s too scary. 🙂
Here’s a few more that enjoyed the quarter (they joined oil and gas) and contributed to the modest market gain.
Cut The Crap Investing readers have long known to add oil and gas stocks, materials and gold if they want to build an all-weather portfolio.
As you may know, big dividend payers such as utilities, pipelines and telcos that carry a lot of debt, can be vulnerable to rising rates and higher borrowing costs. Bond yields also start to compete with the dividend yields. Investors and professional portfolio managers can start to rotate more into bonds and other sectors. We experienced that event in 2022 into 2023 and beyond.
In the Globe & Mail David Berman covered Canadian investors favourite hunting grounds. …
David offered some solid commentary. Here are a few bits …
‘Investors are waking up to the threat posed by surging bond yields, if the downturn in Canadian telecoms, utilities and pipelines is any indication.
Is this downturn an opportunity or the start of something worse?
Rising bond yields can diminish the appeal of dividends, raise borrowing costs and add a dark cloud to the economic outlook. In Canada, a number of stocks stand out for showing early vulnerabilities.
This isn’t solely an inflation story, as it was in 2022 and 2023. This time, rising government deficits and soaring debt from hyperscalers are contributing to rising bond yields.
These trends are unlikely to slow any time soon. They could get worse, especially in the United States, where the annual budget deficit has risen to 6 per cent of the country’s gross domestic product.
Investors are now growing cautious as bond yields rise. Bargain hunting, though, might require some patience.’
Join us at Wealth Club
This week at Wealth Club, I’ll be taking a closer look at Canadian stock portfolio management. Can we go bargain hunting? How do we keep greater diversification in mind? Will the inflation fighters continue to do their thing? We hope you’ll join us. We will also be having our first Zoom Call within the next few weeks.
My preferred Canadian stock portfolio model continues to outperform the TSX in 2026. I will cover how, and why.
Pipes and utilities estimates
On pipelines and utilities, this RBC report was shared on Twitter / X.
More Sunday Reads
At Findependence Hub, spending in retirement is the hardest part from Alain Guillot. I’d add those the vast majority of Retirement Club members have no problem spending. Those who are already retired appear to be spending and enjoying retirement to the fullest.
Confidence can come from running the numbers and seeing the retirement cash flow plan. You’ll know when to take CPP and OAS and then how to draw down from various accounts, pensions and other income sources in the most efficient, tax-efficient manner. At Retirement Club you’ll learn how to use the MayRetire retirement calculator. You’ll get a helping hand in evaluating your personal plan and testing various scenarios.
You can sign up using this link to receive a significant discount on the MayRetire Plus Service. There is also a free-use option at MayRetire.
Here’s the MayRetire intro video. I have recorded the. 2.0 video so that you can learn how to add pensions, tailor the tax rate and RRSP meltdown, control your asset allocation on each account, add other income, manage estate taxes, and optimize. That will be available soon.
Dividend Hawk looks at his dividends and portfolio news for the week. It’s good to see a significant share buyback announcement for Scotiabank.
Canadian Financial Summit
The popular Canadian Financial Summit is back.
If you’re looking for the full access pass, you can sign up using this link.
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Retirement Club
You can also join us at Retirement Club for Canadians. It’s most everything you need to DIY your retirement. The Retirement Club offering …
The sensible advice route
Earn a break on fees by way of of this Justwealth partnership link.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop. Canadians can have it all. That’s a wonderful shop for retirees who want planning and low-fee portfolios. Of course, it’s a great option for those in the accumulation stage as well.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
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