Sign Good Economy/Bernanke 2020/Buy in May+
Steady equity markets in CAD & US while NASDAQ hits record high. Summer tends to be quiet with a summer equity rally – will it happen
Positives: Federal Reserve & Economic report all very positive on US economy and signals more rate increases – sign of a good economy. ECB guides to end QE purchases in December – leave benchmark rate at 0% and will remain there until at least the summer 2019 – a strong yet simple statement. China tariffs more bark than bite – markets not bothered. US & North Korea walk away from Singapore with pledge towards peace. Small business optimism surges to 34 year high in US. Employment record high - job openings need to be filled. Saudi’s start to ramp up oil output ahead of OPEC meeting. Fed funds rate still way below rate of growth in nominal GDP - past year nominal GDP growth has accelerated to a 4.7% and next year it could be as high as 6% that means a 3.5% Fed Fund rate (after predicted rate increases) would not be restrictive. US has $1.9 Trillion in excess bank reserves – until those reserves are eliminated no one knows if raising rates can a cause recession (B. Wesbury). Doom & Gloomers have shifted to forecasting future recessions, not looming crises. Health of US economy supports small caps which also broke to all-time highs (J. Siegel). Buy in May & Stay Invested (Pension Partners). CDN wage gains are far outpacing the US. Paul Tudor Jones – predicts a big stock market rally after the mid-term elections this legendary hedge fund manager who predicted 1987 Crash. Most trade models say protectionism damage is small. Purchasing Managers Indices (PMIs) remain at levels consistent with decent economic growth and while the business cycle is in its later stages, signs of next recession are scarce. Measures of confidence of business and consumers climb to levels not seen since early 2000s. (RBC CM.)
Negatives: G7 ends as it started with Trump acting petulantly and criticize world leaders. Bernanke sees a 2020 Recession looming. New problem is economy growing too fast? Will Fed over-tighten and recession inevitable. Yield curve flattening affects confidence. Government spending is rising rapidly and the deficits this spending will create will put pressure on politicians. As rates rise and pause to rise, we can see market volatility as traders re-calibrate their expectations. Trade uncertainty likely exerting economic drag. US public debt profile deteriorating. CDN mortgage crunch. US net interest payments set to become more expensive.
Investment Wisdom: “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” - Peter Lynch
PORTFOLIO MANAGEMENT–Week’s Highlights
Stock of the Days: BRK’b, OTEX, ADBE, AC, ONEX
New Issues: AP.un, EIF, INE, FC
Have a great weekend. Bruce
MacKay Weekly Investment Report Contents:
Page 1 - How I see It
Pages 2 & 3 - Notes and Quotes
Page 4 - CDN Mkts
Page 5 – Int’l Mkts
Page 6- Funds & ETFs
Page 7-9 – Favourite Charts
Page 10 – MacKay Group Portfolio Management
Page 11 – Comprehensive Wealth Management
Page 12 – MacKay Group News & Events