Market Commentary

Making Cents of the Markets

Be in the know

Q3 earnings season has essentially wrapped up with Walmart reporting yesterday. The final bottom-line EPS beat rate for the season came in at 65% and top-line revenues beat rate was 58%, both solid numbers that are in line with historical readings (see chart of the week below).  27% of companies posted a “triple play” – stocks that beat estimates on earnings, beat on revenue and raise guidance.

The upward momentum continues with markets hitting another set of fresh highs due to a combination of a good earnings season (with not too many dramatic blow ups and plenty of solid results for the biggest companies), positive sentiment surrounding trade with both sides openly showing cooperation, an accommodative central bank, disappearing recession worries and improving indicators along with optimism from the US consumer. All of these are contributing to the rally and creating an environment that is basically, the opposite conditions to a year ago – aside from earnings which have been solid for some time now.  As we’ve pointed out before, markets will continue to hit “new all-time highs” as it moves higher from here so get used to seeing that in the headlines. They have hit record highs four times this year alone (April, July, September, November). As it stands now, the TSX is 2.2% higher than its April peak, S&P500 3.1% higher than its July high.

This breakout is holding and we’re likely to see this be the next leg up from here as breadth is strong though we do think volatility could come back quickly if negative trade news about the December 15th tariffs arises. Especially since it’s been 25 days since we’ve seen a 1% intraday downside move. While some indicators show overbought conditions and the greed factor is high, the overall positive momentum could continue for a while – theoretically for a few more years with the right support and stimulus which the Republicans are going to push for as they look for re-election and need a strong economy and market.

The Canadian dollar, at $0.7560 per USD, has gone back to the middle of its short and long-term range but is still causing a bit of a drag on our USD positions since the US dollar itself is down 3% from the start of the year. Interestingly, the shorter term range is $0.73-0.77 and it’s been range bound between $0.70-0.80 for the last five years though it will likely drift to the lower end once the Bank of Canada starts dropping interest rates.

Our strategy

Looking ahead, we are looking for new concrete information on the signing of phase one between China and the US. This week Trump spoke at the Economic Club of New York but didn’t give many details that the markets were looking for which was a little disappointing, though he did mention that the Chinese seemed eager to make a deal. Even though the phase one deal is already partially priced into the markets, the official finalization of it will probably be the catalyst for the next push higher but keep in mind that the markets are rallying on the fact that it’s now realized that a recession is not around the corner and the global slowdown is better. In fact, it’s encouraging that global indices are confirming the the moves by US stocks. Consider that even despite brutal German manufacturing data, the DAX is near new highs and record levels. Only Chinese and New Zealand markets are below the trend.

With this in mind, we are comfortable with our exposure to the stock markets. We have a healthy balance to the portfolio that includes fixed income, defensive stocks and cyclicals. Investing is different than trading and we don’t look to time the markets. Ideally, we’d like to hold our winners as long as possible, riding the momentum, and will hold onto solid companies as long as they meet our fundamental and technical requirements. We’re constantly reviewing the positions and comparing to a farm team of alternatives to look for opportunities to high-grade the portfolio. When markets hit new highs, this gives us the chance to revisit valuations and take profits or add to positions that we feel still have good upside potential.

Chart of the week

A solid earnings season comes to a close:

(source: Bespoke Investment Group)

Beyond the Markets

As the weather gets colder, stay warm while experiencing the best theatre Vancouver has to offer! There are plenty of options to choose from during the winter season including the Broadway Musical, Waitress, which includes music from 7-time Grammy®​ ​nominee Sara Bareilles. The musical is based on the film by the same name and follows an expert pie-maker on her way out of a small town. Click here to learn more.

Or head down to the Stanley Industrial Alliance Stage for one of the most powerful and romantic musicals of all time, The Sound of Music. The iconic story speaks of a nun named Maria, who is sent to take care of seven motherless children and finds love along the way. Click here to learn more.

Listen to this week’s Making Cents of the Markets on CKNW. We discussed market highs, the impeachment hearings, retirement income, and gifting money to children. Listen here.

Take a look here at our latest North Shore News article where we discuss how the recent federal election could impact investors.

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.