Mid-Terms Expected/78% Beating so Far/6 Leading
Better week for CDN & US equity markets - TSX up 3.6% - Dow up 6.5% - will it hold until year-end? Markets get mid-terms right.
Positives: US mid-term elections turned out about as expected – S&P 500 best rally since 1982 – historically equity market performs very well for the year following elections. Infrastructure spending could be building in US. OPEC is now talking about moves to support oil prices. Numerous Reuters articles released this week held upbeat tone towards US & china relations. Earnings season in US – 78% are companies beating earnings estimates – 61% of companies beating revenue estimates – forward earnings estimate $172.99 – EPS growth 27.1% - revenue grows 8% - of 75% of S&P 500 companies having reported. AAII Investor Sentiment Survey 41.3% bullish – optimism rebounded strongly from an unusually low level – still remains below average. Keep your eyes on the fundamentals – if you read the headlines or watch the news, conventional wisdom has been hammering the idea of an escalating trade war with China – if you do your own research you find China has already started backing off (B Wesbury). TLT 20 year treasury $112.00, long way to go until 90 – historically a recession level. Corporate tax cuts and deregulation policies are pro growth. Rising wages appear to be drawing more workers back into labour force. Jim Allworth presented at our managed money conference this week – does not see a recession for 2 years – his 6 leading indicators are fine: 1) credit – easy money, 2) Yield curve – while flattening is not inverted, 3) Q3 nominal growth rate is 5.5% (GDP + inflation) we will need 14 rate hikes to be flat, 4) unemployment claims have not turned up, 5) leading economic index (10 economic services) yoy change 7% long way from zero , 6) ISM - new orders and inventories are still quite high.
Negatives: Speculation rises of fresh elections in Italy amid budget standoff between Rome & Brussels - effects European Union. If it’s the best economy that we ever had – why raise rates – why not leave it be if it’s growing with low inflation. New York Fed probability of a recession indicator in next 12 months still rising. Housing has deteriorated prior to virtually all recessions – save the 2001 downturn. Global Citi Economic Surprise Index have been decelerating. We have endured two 10% corrections in the same year for all 3 major averages - this only happened in 1973, 1974, 1987, 2000, 2001, 2002, & 2002 – all but 1987 signalled a recession – but that wasn’t pretty (D. Rosenberg). US mortgage applications hit lowest since 2014 as rate rise.
Investment Wisdom: “Every past decline looks like an opportunity, every future decline looks like a risk” – Morgan Housel
PORTFOLIO MANAGEMENT–Week’s Highlights Stock of the Days: TRP, COST, BA, GIB’a, DIS New Issues: IPL, RY
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