Market Commentary

Making Cents of the Markets

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The TSX and the Dow couldn’t hold onto the weekly gains they had accumulated on Thursday but the S&P500 managed to squeak out a rise of 0.5%. The Dow, comprised of just 30 stocks, pulled back more than triple the larger S&P500 on Friday but just two stocks, Boeing and Johnson & Johnson, were the main influences as news that the issue with the 787-Max was more widely known much earlier than expected and the FDA alerted consumers of a baby powder recall. Both stocks pulled back over 6% on the day.

Overall, it was another week of mixed news with the positivity of a number of companies posting big earnings beats, a Brexit deal being sent for approval and US Treasury Secretary Mnuchin stating that he expects a deal before the December tariff increases kick in being offset by surprising retail sales and slower Chinese economic growth. Housing starts pulled back from their 12 year high last month but we don’t view that as a negative as the 1.256 million figure is still very healthy.

The retail sales miss isn’t actually that surprising when you consider the numbers. Core spending was unchanged from August but consumers have grown a little cautious on buying building materials and automobiles, which could be expected given the headlines constantly mentioning a recession could be around the corner, which we’ve repeatedly pointed out is not the case yet. Gasoline sales were also down but that could be the result of lower gas prices in the month of September (which is certainly not the case around Vancouver this month!). Jobless claims remain near a 50 year low so there are no layoffs yet despite the slowdown. The USD has pulled back about 2% from its September peak and 4% from the start of 2019, making it a little cheaper for international consumers to buy US goods. This will help boost exports and their economy.

China kick started the week by throwing some cold water on the “phase one” deal by stating that they want to talk more before signing off. Progress was made though and with China’s economy growing at “only” 6.0%, (a figure other countries would love to have but a 30 year low for the Asian giant), they will be feeling the pressure to make a deal. Expectations were for 6.1% so it’s a small miss but the trade war is obviously bruising their economy. Keep in mind also that we’ve said for years that you can’t expect an economy that large to constantly grow at high percentage rates. Just naturally, the same dollar amount of growth will eventually mean a lower percentage growth year over year.

Global growth for 2020 has been lowered to 3.0% by the IMF but corporate America is mostly beating expectations. After the first major week, 73 out of 500 companies in the S&P have reported and of those, 84% have come in above estimates, though we do note that the bar was lowered prior to the season beginning. A lot of companies are doing so through good management of resources. For instance, Coca Cola grew revenues higher than anticipated and improved its future guidance by focusing on smaller can sizes and pushing more diet pop through the checkouts as consumers aim for healthier lifestyles.

Our Strategy

A strong start to earnings season with most companies continuing to beat expectations on the bottom line, along with positive, albeit a little more moderate than initially thought, trade discussions, means we remain confident that the upward momentum will continue. The economy is still in good shape and we have a favourable outlook on the markets for the remainder of the year though the geopolitical noise is not going away anytime soon. In terms of momentum, the S&P posted 29 new 52-week highs this week (including a few Legacy portfolio positions) and only two new lows (neither of which are held).

The markets are near the top of their recent sideways range that started a year ago and a good finish to earnings season with an official completion of “trade deal – phase one” would likely be enough to have it break out to the upside. A drop in interest rates at the end of the month would also help but 87% of analysts think they won’t do a third cut so soon with the economy still in good shape and the recent weakness in the USD. A lower US dollar is good for their economy but acts as a drag on investment portfolios with a higher exposure to US stocks so keep that in mind.

Chart of the Week

94% of the time when this happens, stocks are a winning bet over bonds (The S&P500 dividend yield surpassed the 10 year Treasury yield)

Beyond the Markets

Rain, rain, go away! These weekend brings with it a forecast of showers, so here are a couple ideas that will keep you warm and dry:

  • Reserve your spot at Catfe to drink coffee with the cutest felines! Rescue cats roam this hip downtown café offering cuddles and play while you sip on a warm catpuccino. Click here to learn more.
  • Drink beer and celebrate the season at this year’s Harvest Haus at Hastings Park! The event includes Bavarian musical performances, European food stalls, and of course, beer! Click here to learn more.

Listen to this week’s Making Cents of the Markets on CKNW. We talked all about the third quarter earnings season, US and China’s “Phase One Deal” as well as retirement and estate planning options for business owners. Listen here.

Take a look here at our latest North Shore News article where we discuss how the upcoming federal election may impact investors. Don’t forget to vote October 21!

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.