100% Chance / Will Act / Capitalize Profit Model
Fed Chairman speaks last two days - his goal is full employment and price stability. Futures expect 100% chance of a rate cut in July.
Positives: DOW brakes 27,000 for the first time ever. Relationship between the slack in the economy, employment and inflation was a strong one 50 years ago is now gone away (FED Powell). Expected rate cut by US would give China more breathing room in shoring up its slow economy - China central bank may take similar action and cut their rates. Central bank will act as appropriate to sustain expansion as cross currents are weighing on the economic outlook. Bank of England financial stability report says British banks hold enough capital to cope with the stimulus risks of a no deal Brexit and a global trade war. Nearly half of the S&P 500 yields more than the 10 year. ECB could launch a stimulus program as early as the summer. RBC GAM - while we acknowledge economic growth is slowing down the pace scene last year we believe the current situation is similar to prior growth scares during this ten year bull market in equities -we recommend investors maintain equal weight equity positions including owning high-quality dividend payers. We are lifting targets on stock prices as Capitalize Profits Model continues to scream BUY – the model takes the governments measure of profits from the GDP reports divided by the interest rates to measure fair value for stocks using a ten-year yield of 2% with profits from the first quarter so just a fair value of the S&P 500 of 5080! - Absurd – based on low rates - if you use a 3.175% (a more realistic level) this forecasts S&P 500 fair value of 3250. Another positive includes the next several months are more likely to lead to trade deals then expansion of tariffs as the 2020 election approaches. (Brian Westbury) Earnings season starts next week , led by US banks – expect good surprises as estimates have dropped.
Negatives: latest prediction by Absolute Strategy Research says PE ratio is pointing to a substantial discount – global recession risk rise - that’s why Fed is cutting rates – they expect earnings growth of minus 5% and maybe -10%. IMF report Eurozone economy faces rising risks from trade tensions, Brexit & Italy. “The bottom line for me is the current uncertainties around global growth and the trade continue to weigh on the Outlook” (Powell). China will see more shut downs as the US China trade war persist. For income investors the backdrop of ballooning negative yield debt and rapid yield compression is creating all sorts of challenges. US trade war over a year old. Central banks not ready for next recession (NYT).
Investment Wisdom: “Behind every stock is a company. Find out what it’s doing” – Peter Lynch
PORTFOLIO MANAGEMENT–Week’s Highlights
Stocks of the Day: FIH.U, JNJ, FID5982, WN
New Issues: BIP
Have a great Canada day and long 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