Market Commentary

Making Cents of the Markets

Be in the Know

Save us Santa! The “Santa Claus Rally” seems to be lost for 2018, with only 5 trading days left in the year. The Dow lost 7% and nearly 1,600 points this week. The Nasdaq lost 8.4% and is now 22% below its record reached in August, officially a bear market for the first time since the financial crisis. The S&P 500 lost 7% this week and is now down almost 18% from its peak. The TSX was down 4.5% this week and is now down 14% on the year. Of course, not much has changed on the economic front, with some better housing numbers early in the week as well as leading indicators maintaining strength in the US. But this week, the Fed decision on Wednesday to hike rates and forecast 2 hikes next year sent markets into a tailspin. These types of periods never last forever, especially when economic conditions are by all means strong, but they never feel good.

Concerning the Federal Reserve’s rate decision, it’s hard to blame them for raising rates given the underlying economics. We think they could have taken a break, given that housing and autos have been showing signs of weakness, a byproduct of more expensive loans. They were really in a tough spot on Wednesday, as they had been pretty clear they were going to hike rates in December for some time, but needed to express some dovishness given the sharp reaction of the equity markets recently. If we are using the markets as a reading whether they succeeded in their message or not, they failed. Having seen several cycles of Fed mistakes in the past, we may once again be seeing them go too far despite interest rates being at historically low levels.

Friday’s latest selloff was exacerbated by White House advisor Peter Navarro saying “China is trying to steal our future”. Sounds like the trade talks are going well, good thing there isn’t a short timeline in place…

Our Strategy

Plan B. We raised cash this week starting on Monday, with cash and fixed income levels in Legacy now representing 39% to 48.5%. There has been some major technical damage done to the market, as no buyers appear to be present. S&P500 support levels are 2400, 2380, 2360, and then 2134 – pre Trump levels. The market has been speaking and we listened, and have a plan to raise additional cash over the shortened week next week if things continue to deteriorate. Friday was emblematic of what the market has been doing lately. After surging about 400 points in the morning, the Dow ended up down 400+ points at close, on little to no news. We think a lot of this can be explained by tax loss selling as well as the hedge fund redemption window at the end of the year, as there just simply aren’t buyers out there right now. The valuation of stocks is attractive, the economy appears to be doing well, but clearly something has broken down – protecting the downside is our concentration at this time.

Chart of the Week

Year-to-date returns for global stock markets are well into negative territory:

2018 Tax Planning & Contribution Limits

  • Tax loss selling: the last day to enter trades for tax loss selling is December 27th, 2018.
  • RESP: the deadline for contributions is December 31, although the room carries forward and you can double up your contribution the following year to maximize the government grant.  A $2,500 contribution qualifies you for a $500 government grant.
  • TFSA: in 2019 the TFSA limit is increasing to $6,000 from $5,500, with the current lifetime contribution limit 57,500 for 2018.
  • RRSP: the 2018 RRSP deadline is March 1, 2019 with a maximum allowable contribution of $26,230. Please check your Notice of Assessment for your individual contribution limits.

Beyond the Markets

Cirque Musica Holiday presents an all-new concert experience featuring the cast of Cirque Musica and live symphony orchestra performing your favorite Christmas songs.

This unique show brings the audience on a journey into a world of “Wonderland” and bestows the perfect opportunity to experience great holiday music, spectacular costumes, production as well as a truly unforgettable circus display.

December 22 at 3:00PM, Orpheum Theatre – 601 Smithe St, Vancouver, BC V6B 3L4

Experience Christmas like never before at Christmas Glow in Langley, BC. Walk through millions of lights and countless statues at this indoor festival. For the kids, Christmas Glow includes interactive features and playgrounds. For adults, you can enjoy drinks at the licensed bar and live music throughout the evening. Make sure to check out the Christmas Market for festive local goodies!

Christmas Glow Langley is running from now until January 12, 2019! You can purchase tickets from their website here.

Wishing everyone a wonderful holiday season!

Listen to this week’s Making Cents of the Markets on CKNW where we discussed the recent market corrections and risk management strategies, cash being an asset class, and value vs. growth investing. Listen here.

This commentary has been prepared by Pinkowski Wealth Management. It is for informational purposes only. Raymond James Ltd. believes this information to be reliable but does not guarantee its accuracy or completeness and is not responsible for any errors or omissions. Raymond James Ltd, member Canadian Investor Protection Fund. This email may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.