Market Commentary

Making Cents of the Markets

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Markets were muted in the US this week, with the S&P 500 losing 0.5% and were strong in Canada with the TSX gaining 1.3%. There was more positivity on trade between the US and China, as well as a Federal Reserve cut on Wednesday this week, which helped the markets maintain strength. Regarding trade, upper level talks this week are setting the framework for early October meetings, and President Trump exempted some more items from tariffs on Friday. This was positive, and while it will be extremely difficult to get an all-encompassing deal by October, the tone is much improved and there is a high possibility of a short-term deal in the works. Of course, late on Friday, the Chinese delegation cut their trip short instead of visiting US farmers which was seen as a negative. Despite the apparent negative end of talks, there could still be a delay in the recently escalated tariffs which would be seen as positive, and is sorely needed by the global economy. The US consumer remains on strong footing, as we saw in some of the housing numbers this week with new housing starts beating expectations and surging to more than a 12-year high in August, US existing home sales rising to a 17-month high, and weekly jobless claims rising less than expected.

Additionally, the Fed eased 0.25% this week as expected. While some pundits had been calling for a steeper cut of 0.5%, it was unlikely with some of the recent positive economic numbers that have been coming in. They noted that trade and slow global growth are currently the biggest impediments to the economy, and the outlook was divided by the Fed members. While the market believes there is still about a 68% chance of another cut in December, the median guidance by the members reflect no cuts in 2019 or 2020. That being said, Fed Chairman Powell reiterated that they will stand by and support the economy as needed, and that inflation is running below their target which would allow for more cuts.

Our Strategy

It might have seemed like a flat week in the US markets this week, but we did see a return of breadth to the market. The percentage of S&P 500 stocks above their 50 and 200 day moving averages continues to expand, which is supportive from a technical point of view. Given the supportive Fed and positivity on trade, it makes sense that markets are approaching their all-time highs again, and we do think a breakthrough happens at some point. The slow manufacturing backdrop and narrow yield curve remain headwinds to the outlook, and volatility in oil prices damper the outlook somewhat. We still think that growth stocks will outperform in the long run, as it is difficult for value stocks to sustain strength in low growth environments. We are diversified about 50/50 to both in our equity exposures at this time given the run in markets this year, however.

We do continue our positive bias towards equities at this time, as despite markets running this year, they came from a large consolidation in Q4 2018. We do not see another massive drawdown like we saw last year, for the record, given the major pivot of the Fed. We think that was one of the major factors contributing to the down leg last year, in addition to all of the other factors like trade. Remember, the Fed was set to hike up to 4 times in 2019, and have now cut twice, with potential of a third. That is not insignificant, even though 0.25% does not seem like a lot, it has multiplier effects throughout the economy. Absent a major negative surprise on trade, downside is likely contained near support in the mid-2900’s. We will be keeping our pencils sharpened through next week and the first week of October for any major developments, and have been adjusting our stop-losses higher as the stocks we hold increase in price.

Chart of the Week

A look at housing, with the recent good data this week, from Raymond James & Associates (USA). The significantly lower interest rates this year continues to support the housing market:

Beyond the Markets

We are now creeping into October and the Lower Mainland is beginning to show its spook-tacular spirit! Head over to the Ioco Townsite this Sunday for Ioco Ghost Town Day where there will be live entertainment, pony rides, and a corn roast. You can also test out your baking skills by taking part in the Homemade Pie Contest which is sure to be both scary and delicious! Also taking place this weekend is the 5th annual Scarecrow Festival at Art’s Nursery. Here you can enjoy a hayride through the grounds, listen to live music, or try some food from the fabulous local vendors!

Listen to this week’s Making Cents of the Markets on CKNW. Our very own John McLean talked all about the Fed meeting, oil market, as well as lines of credit in Canada. Listen here.

Take a look here at our latest North Shore News article where we explore different types of retirees! We get insight from our very own clients to give you a better idea of the possibilities you have when entering retirement.

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.