November 22, 2019
Making Cents of the Markets
Be in the Know
Markets took a breather the last few days after peaking intra-day on Tuesday. Both the Canadian and US markets were slightly down, with the TSX -0.4% on the week and the S&P -0.33%. It was a bit quieter with no new concrete updates on the US-China trade deal but we are still getting noise with some mixed signals. Knowing that both sides do want a successful phase one deal, we believe progress will continue ahead of the December 15th tariff deadline.
The latest retail sales report showed that consumers are still shopping more than expected, which is great for the US economy. Target, a company we own, was up 12% after earnings were reported. We are up 46% on this position in only 4 months and are considering taking our profits. We’re evaluating it and may trim it back. Lower interest rates are going to help encourage spending to continue . Next week is the US Thanksgiving with the closely watched Black Friday shopping weekend (though it seems to be more of a shopping week now). The statistics are anticipated to be good, but the markets could be quiet with the US closed for trading on Thursday and an early close on Friday.
We’ve seen the markets rally almost straight up over the last 6 weeks and while the phase one trade deal and a solid earnings season is prompting much of it, emotions are also contributing. Greed is creeping in and some investors may be getting too complacent as they chase the gains, not wanting to miss out. Almost every piece of bad news since the quarter began has been shrugged off by the market and even whispers of good news drives them higher. It’s a good time to be cautious. Optimistic, but cautious. If the trade deal fails and tariffs escalate, a quick correction is highly probable.
Having already made changes to the portfolios that have benefited from this market rally, we continue to upgrade certain positions and add some diversification to the mandates. We recognize that this latest leg higher, after breaking out to new highs, is driven by mostly by trade. It was President Trump announcing that phase one was almost complete which drove optimism as high as it is. Markets will get more sensitive and more fragile the closer we get to December 15th without something official being inked. But this rally still has legs as the economic data remains fairly strong. Consumer sentiment and spending are strong leading into the holiday season. This bodes well as we head into the biggest shopping season of the year, kick starting with Black Friday next week. We continue to monitor markets closely and rather than make predictions on when the top will come, we will gauge risk levels as we always do, hold our winners as long as possible and benefit from the upward momentum. What allows us to implement this strategy so well is because we monitor our positions so closely and can be quick to react to changing conditions, data or momentum.
Chart of the Week
Housing starts have historically been a good indicator and signal of a recession. See below the chart that shows the every recession over the past 50 years. With Housing Starts back on the rise, it should ease recession concerns that were front and center earlier this year.
Beyond the Markets
Now that winter appears to be coming in full force, Metro Vancouver has no shortage of holiday events taking place! Head over to the Capilano Suspension Bridge from now until January 26 for a spectacular lights display throughout the iconic park. The festival will also feature a Snowy Owl Prowl scavenger hunt and sing-along carols! Or take a stroll through Grouse Mountain’s Peak of Christmas 2019 for a wonderful wintery treat! The season-long event will feature an outdoor skating rink, reindeer, and Santa’s Workshop where you can write letters detailing your Christmas wishes.
Listen to this week’s Making Cents of the Markets on CKNW. We talk about the importance of managing your emotions when investing. Listen here.
Take a look here at our latest North Shore News article where we discuss how the recent federal election could impact investors.