December 28, 2018
Making Cents of the Markets
Be in the Know
Santa was clearly busy delivering presents last week, and decided to come late to the stock market party. Monday was the worst Christmas Eve decline ever. Not a great way to start the holidays! However, on Boxing Day, while the markets were closed in Canada, the US had an incredible rebound signified by the largest point gain on the Dow Jones EVER! It surged over 1000 points and closed up 1084. We normally don’t focus on the performance of the DOW as it is a price-weighted index of only 30 stocks, but on weeks like this, you kind of have to!
On Thursday, the DOW staged its biggest comeback since May 2010, after being down 600+ points intraday (2.6% loss) to end the day up 260 points (1.1% gain). That was an 860 point swing – the market is constantly testing the nerves of investors who are getting a little tired of the wild ride!
And on Friday, we ended on a quiet note in North America, for a final tally of the S&P500 up 2.9% on the week, the DOW up 2.8% on the week, and the TSX up just 2% on the week. It has still been a brutal December, with the S&P500 off close to 10% and the TSX off 6.4% just this month. That makes it on track for the worst December since 1931 – the Great Depression, with one trading day left. (December is usually a good month for markets!)
On the economic front, numbers were mixed this week. We received news that retail sales were up, and having their best holiday season in 6 years. That was followed by a 5-month low in consumer confidence, which was still a strong number, but below expectations. And on Friday, we received home sales numbers that fell 0.7% versus expectations of a 0.7% gain, likely due to the increase in mortgage rates over the last few months, but not reflecting the recent decline in mortgage rates. That number may recover in December, but combined with consumer confidence, these are the cracks in the economy that the Federal Reserve needs to pay attention to. It was a quiet week for Canadian economic releases given the additional holiday on Wednesday.
The partial government shutdown in the US continues, with about 25% of the government closed. A client asked this week about the potential effects of a shutdown, and there’s a good report here. The bottom line is that it can be seen as an economic “speed bump” as long as the shutdown is short, and workers get back pay. The longer it goes on, the more risk it carries. Given that most of the government is funded, this shutdown is less of a concern at this time.
We were on the verge of selling some more positions on Christmas Eve as some more stops had been triggered, but given the light trading volume, shortened week and the pure panic selling, we thought it would be better to hold those positions in our Legacy portfolios for the time being. That was the correct decision as the market had a record surge the very next trading day and some of those positions are now above their hard stop levels. Our equity exposure for the Legacy portfolios is between 50% to 60% depending on mandate, which we feel is appropriate for now given the volatility in the market, combined with compelling valuations. We may reduce stock exposure further if markets continue this rollercoaster ride but prefer to sell into strength if possible. It’s also important to see how the market adjusts during a normal trading week such as the first and second weeks of January.
There are always many reasons to be concerned about markets or the global economic/political environment at any given time. It just appears that is magnified as of late and now we are continuously being “hit over the head” with potentially earth shattering bad news, i.e., Global Recession, Impeachment, Brexit. We monitor all of the risks and in our opinion the biggest headwinds for markets at this time are the following: a slowing global economy spilling over into the US, trade war escalations between the US and China and Europe, and the Federal Reserve hiking too fast. This is why being a flexible Portfolio Manager that remains active in this environment to make quick decisions will pay off in the long run. Unfortunately, we can’t eliminate portfolio or market declines – especially short term, but we manage them diligently while raising cash during times of uncertainty. We are also looking for investment opportunities when they finally present themselves and markets stabilize.
Chart of the Week
Real estate in Vancouver is trending the wrong direction over the last year, with sales and prices trending lower…this is a MUCH scarier chart than the stock market right now – Vancouver median home sales off 40% or more….in our opinion, prices will follow well into 2019.
Upcoming Conference Call
Stay tuned for details on our upcoming conference call we are hosting on January 8th. We look forward to providing you with insight into the market volatility we experienced in the 4th quarter as well as summarize all of 2018. We will discuss strategy for 2019 and how we plan to navigate current market conditions.
We have so much to discuss but we felt it would be a great opportunity for your input on what you would be interested in hearing about this time! Please send us any questions or topics you would like us to cover by clicking here and we will do our best to accommodate given our limited amount of time on the call.
Beyond the Markets
It’s that time in our calendars again as 2019 is just around the corner! For those without plans yet, we propose a variety of different activities around Vancouver. From Canada Place or Metrotown to the peaks of Grouse and Cypress Mountains, the festivities here include ticketed parties, free concerts, mesmerizing fireworks and many more.
Click here for a guide into 2019!
On behalf of the Pinkowski Wealth Management Team, we wish you all a happy and prosperous New Year!
Check out our latest North Shore News article here for insight into getting your finances in order.