Market Commentary

Making Cents of the Markets

Listen now to the most recent Making Cents of the Markets on CKNW, where we discuss all aspects of the economy from retail earnings to the BC real estate market cooldown. What will happen if prices continue to fall?

As the back-to-school season is approaching, Lori talks about the benefits of opening an RESP account while your children or grandchildren are young!

Click to listen here.

Beyond the Markets

PNE Fair 2022

The PNE Fair is back and kicks off from August 20th to September 5th with returning attractions & new programming too. This year’s fair is your perfect end-of-summer activity with so much for the whole family to enjoy.

Summer Night concerts are also returning to the GMC stage to fill the PNE Amphitheatre with sweet sounds! Buy your tickets online here to make sure you don’t miss out!

 

Be in the Know

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” – Archimedes

 

Bear claws are filled with sugar

The S&P 500 has clawed back over half its losses this year. According to a Bloomberg analyst, every time the index recovers more than half of a 10% or more loss going back to 1926, the market went on to not retest the lows. Actually, out of 80 such 10% plus corrections, only once did the market turn back down and surpass the previous low, and that was in 1930 (the start of the Great Depression).

From Bloomberg:

“Something bad happens and stocks fall. The drop scares a lot of people who flee the market. It exposes weak hands who are forced to sell or even go bankrupt and dump their assets. Few new investors are brave enough to buy stocks. For these reasons, stocks fall more than the fundamental news justifies and stay down longer.

By the time the accumulation of good news has erased half the losses, laboring under the drag of investor pessimism, we’ve likely put the bad behind us and are on a new upswing. But prices are still lower than they should be due to fearful investors. We can expect the old investors will start returning to stocks, new investors will enter and optimists will increase their leverage. As the headwind changes to a tailwind, stocks should do better than average for a while. The bravest investors “buy when there is blood in the streets.” This is not quite so bold: “Buy when half the blood has washed away, but most people are still cowering at home.” If you wait until the streets are scrubbed clean, you have to expect to pay top dollar.”

That doesn’t mean it can’t still happen, but it is statistically unlikely.

 

Where does Walmart keep the Terminator DVDs? Aisle B.

“Tuesday’s inflation number offers a bit of relief, but unfortunately, it will take some time before inflation is back to normal,” wrote Tim Macklem who heads the Bank of Canada. It cooled to a pace of 7.6% annualized for the month of July. More hikes are coming and they won’t relax until inflation gets back to their 2% target.

The latest U.S. retail sales spending was flat but that’s mostly due to power prices at the pump (a good thing).

Walmart beat its previously lowered guidance, reporting 8% sales growth, but lowered profits as consumers emphasized lower-margin discounted goods and essentials. But the stock jumped 5%, relieved considering the economic backdrop. Guidance for sales growth is set for a 3% rise in the back half of the year (4% for the full year) while earnings will be down 9%-11%. However, investors are forward-looking and continue to support the stock with a positive outlook for the company.

Lowe’s had similarly mixed results, beating analysts’ expectations on improving sales but the business is still off its normal pace.

We highlight these retailers because their customers reflect what most of America looks like and are therefore a reasonable proxy of the economy.

 

Watch out for oil slicks

China, facing latent Covid lock-down challenges and a major real estate correction, enacted a surprise interest rate cut after especially gloomy July economic data. Everything from consumer spending to factory output and investment was down in the world’s second-largest economy.

But an economically sluggish China means less oil demand, which helped take the commodity back down below $90 a barrel in North America. The same goes for other commodities, like soybeans and copper. This, in turn, was good news for stocks and the Fed’s fight against inflation.

Lower oil prices are also good for stocks. Below is a chart illustrating how stocks rise when oil prices fall, and vice versa. Oil prices (the white line) are shown in reverse below:

 

 

Our Strategy

Inhale… exhale…

With equity markets ending a four-week winning streak, Legacy portfolios took a breather as well. These so-called breathers can also be seen as an opportunity to pick up some more quality companies that we have had our eyes on before market momentum resumes. We have been quite active this week, taking profits from areas that have run exponentially in a short period of time and are likely due for a pullback, while also adding to exposure to areas that may be a better opportunity. It is always important for us to fine-tune our portfolio positioning and take some profits when a stock is running a little too hot.

Our active management has once again allowed us to stay one step ahead, as our portfolios were down less than half as much as markets on average this week and ahead of their relative benchmark.

Visual of the Week

The S&P 500 is up 13% in July and August currently. This would go down as one of the best summer rallies ever, but safe to say the 89% rally in 1932 is ok.

The last 3 times it gained >10% in July and August? 1989, 2009, and 2020. The final 4 months added 13.5%, 16.9%, and 20.2%.

 

The comments and opinions expressed in this newsletter are solely the work of Pinkowski Wealth Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions, or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Pinkowski Wealth Management does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.

 

CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA