Tariffs/CEO’s Time is Now/Several More Years
US, CDN & oversea equity markets drifting lower this week – end of quarter window dressing supporting equities.
Positives: US bank stress test results help banks prepare to return excess capital to shareholders – dividends & buybacks. US sanctions bolster global oil markets – Trump’s hardening Iran policy. Forecasts remain of the view that the economic spillover from the tariffs announced so far between various countries is likely to be modest and manageable in foreseeable future. Last week brought fresh evidence that business investment is accelerating – CEOs reported the highest CAPEX plans in the 16 year history of the Oscar Evercore ISI Survey – 24% YoY increase in CAPEX by S&P 500 companies in Q1 is just beginning of something much bigger – spending on property, plant & equipment could be a key driver of growth for next leg of this cycle, perhaps contributing to the strongest economic growth seen yet – CEOs say the time is now. First time in US history there are more open jobs than people out of work. Industrial + manufacturers that supply equipment enabling greater worker productivity should see the biggest boost. Supply management PMI numbers, new orders & production are showing acceleration – general sentiment among equity investors remain subdued – many continue to say their stock market outlook has gotten less constructive – contrarians invest as few think stocks are attractively valued. We believe that the current business cycle has at least several more years left to run – 9 years and counting = signs include – unemployment still dropping, wages are rising (but not sharply), Fed Reserve is tightening, but real interest rates are zero, inflation is moving higher slowly, yield curve not inverted, profits increasing & leading indicators are still rising (B. Wien).
Negatives: A rough patch for emerging markets as the worsening threat of a trade war has soured sentiment towards export dependent EM countries. Concerns about global growth are in turn triggering worries corporations may talk down their financial guidance for a second half of year. Capitalism hate economic uncertainty – trade uncertainty – could start a negative feedback loop that starts to impact consumer & business confidence – as well as behaviour. Trade sector succumbs to mounting trade anxiety. Fears of policy error & trade war remain major overhangs in need of resolution. Mid-term election year stock market performance is notoriously bad & July historically the most painful month going back to 1962.
Investment Wisdom: “Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.” – Peter Lynch
PORTFOLIO MANAGEMENT–Week’s Highlights
Stock of the Days: NVDA, VZ, CNQ, AMZN, BIP
New Issues: MAV Beauty, E-Split, MOZ
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