Canada’s June headline inflation rate jumped to an annual 2.5%, up from
2.2% in May, while retail sales jumped 2% in May over April (a 3.6% annual
rate). The two datapoints suggest underlying economic growth, despite
continuing anxieties over trade and tariff tension with the U.S., and set
the stage for another interest rate hike by the Bank of Canada in
September. Toronto’s benchmark
S&P/TSX Composite Index
dropped 0.8% on the week, as
edged down, falling 0.2%, while the retreating energy sector dragged on
overall index performance. In the U.S., the major stock indices ended the
week just about flat, as U.S. President Donald Trump’s trade and tariff
salvos against China and other trading partners, such as Canada and Mexico,
continue to unsettle investor sentiment. As the U.S. dollar weakened in
reaction to Trump’s accusations of currency manipulation by the E.U. and
China, both the
S&P 500 Composite Index
remained flat on the week, despite some strong earnings reports from the
Microsoft Corp. (NASDAQ: MSFT).
One of my favorite definitions of risk and uncertainty comes from a book by
Nate Silver entitled The Signal and the Noise. He defines risk as
the grease that facilitates economic activity, whereas uncertainty grinds
things to a halt. According to a popular index developed by Professors
Baker, Bloom, and Davis, Canada’s economic policy uncertainty has moved to
new highs in 2018 after rising for the past several years (see the Chart 1
below). No wonder the Bank of Canada (BoC) has been sounding so cautious
even though Canadian economic data remain firm.
The major North American stock indices posted respectable gains on the
week, as underlying economic fundamentals remained strong, and hopes
remained high for a strong second-quarter earnings season. Despite
continuing trade tensions fueled by U.S. President Donald Trump’s outbursts
this week in the U.K., soaring technology issues propelled the
Nasdaq Composite Index
to a record high, with a 1.8% advance on the week overall. Those same
technology gains helped push the Dow Jones Industrial Average back above
the 25,000 mark for the first time in more than a month and lifted the
S&P 500 Composite Index
over the 2,800 mark for the first time since February, giving the blue-chip
index a 1.5% gain on the week. Toronto’s benchmark
S&P/TSX Composite Index
ended just about flat on the day at Friday’s close, weighed down by sliding
bank stocks, but the index still managed a 1.2% advance for the week
lost 4.4% on the week (and is now down 16.8% year to date), while
was down 1.1% on the week.
Like many investors, we are always looking for insights into how we might
improve our outcomes over time. By taking a multi-disciplinary approach and
“thinking outside the box,” we sometimes get our inspiration from endeavors
completely unrelated to the world of investing. As we prepare to watch the
World Cup, it reminds us of a study from a few years ago about the actions
of goalkeepers on penalty kicks, and surprisingly, it provides some helpful
lessons for investors as well.
The U.S. economy added 213,000 new jobs in June, beating consensus
expectations and underpinning positive market performance for the week.
Together with an unemployment rate of just 4%, the pace of job creation
indicates strong underlying economic growth, as wage pressures remain
contained. Economic fundamentals overshadowed fresh anxieties over
President Donald Trump’s imposition of billions of dollars in new tariffs
on Chinese goods, with countervailing tariffs imposed by China. The
S&P 500 Composite advanced 1.5% on the week, while the
Nasdaq Composite Index gained 2.4%. The Canadian economy added 31,800 new jobs in June, with the
unemployment rate holding steady at 5.8%. The strong jobs data suggest that
the Bank of Canada will hike its key lending rate, following in lock-step
with the U.S. Federal Reserve’s rate hike last month. Toronto’s
S&P/TSX Composite Index gained 0.6% on the week, with financials, energy, and telecommunications
issues providing support to the market.
Crude oil backed off 0.7% on the week, while
gold held steady, just above breakeven.
The major North American stock indices lost ground on the week, as markets
continued to flirt with bearish sentiment. In Canada, the economy grew by
0.1% in April (2.5% annual rate), providing more support for a Bank of
Canada rate hike in July, following in lock-step with the U.S. Fed’s 25
basis point hike on June 13. However, Canadian inflation remains cooler
than expected, with May’s reading coming in at an annual 2.2% rate, pretty
much at the BoC’s 2% target. And trade tensions with the U.S. over tariffs
and NAFTA negotiations continue to dog market sentiment, making the path to
positive performance less clear. The
S&P/TSX Composite Index lost 1% on the week, while gaining 1.4% in June for a respectable 6%
advance in the second quarter, supported in part by at 16.5% surge in the
U.S. stock indices similarly lost ground on the week, while turning in only a tepid
performance for the month, as investors gravitated to the risk-off trade.
As the ultimate haven asset, however,
gold was distinctly contrary, instead posting a 1.3% loss on the week, a 3.9%
loss on the month, for 5.7% retreat in the second quarter overall.
Low fees may be the first thing that attracts investors to exchange-traded
funds (ETFs) of any kind – passive, smart beta, and active– but
it may be worth a deeper dive to find out what you’re getting for your
money. That’s because each of the three ETF categories takes a slightly
different approach when it comes to investing. Yes, all three can be bought
and sold throughout the day like stocks, and yes, they’re generally highly
liquid, meaning there’s a ready market of buyers if you want to sell.
Beyond that there are pros and cons to investing in each, and it’s
important to review them with your advisor to determine what’s right for
you and what you get for your fee.
It is phenomenal to think about the evolution of the
Berkshire Hathaway Inc. (NYSE: BRK.A) annual meeting over the years. Fifty-three years ago the first Berkshire
Hathaway annual meeting was held for friends and family in a lunchroom.
Today, more than 40,000 people descend on Omaha and fill an arena to
capacity, not to mention an online live stream that is viewed by many
thousands more. I recently had the privilege to attend the annual
“Woodstock of Capitalism” and learn first-hand from the living legends of
Toward the end of 2016, the active vs. passive portfolio management style
debate raged. Those arguing in favour of active management predicted that
actively-managed funds would outperform the broader market universe in
2017, including index funds. How did that turn out? The results might be an
eye-opener to some.
Diversifying globally provides a range of benefits for Canadian investors (read more here). However, venturing abroad introduces currency risk. Intuition leads us
to believe that because currencies are volatile, exposure to foreign
exchange swings in a portfolio can only be detrimental. This isn’t always
the case, as we find that the impact of foreign currency exposure on risk
hinges on the investor’s home currency. In our view, Canadian investors
should embrace currency exposure in equities, as global equity returns have
tended to be less volatile when measured in Canadian dollars.
Markets shrugged off trade tensions swirling around this week’s G7 meeting
in Quebec, as the main North American market indices advanced on the week.
Except for a net 7,500 job loss for the Canadian economy in May, the week
was light on significant economic data. Despite the decline, Toronto’s
benchmark equity index, the
S&P/TSX Composite, managed a gain of 1% on the week overall. Similarly, U.S. investors gave
little weight to trade hostilities between the U.S. and its main allies
Canada and Mexico, arising from President Trump’s imposition of tariffs on
steel and aluminum, as well as fractious NAFTA negotiations. Instead,
investors marked time ahead of next week’s rate announcement as the U.S.
Federal Reserve is widely expected to raise its federal funds rate a notch.
S&P 500 Composite Index advanced 1.6% on the week, while the tech-weighted
Nasdaq Composite Index gained 1.2%.
Crude oil edged back 0.2% on the week, while
gold ticked up 0.4%.
A better-than-expected May U.S. jobs report helped spur the big U.S.
indices to weekly gains. The 223,000 jobs created in May combined with a
monthly 3.8% unemployment rate and accelerating wage growth (up 0.3% on the
month) to raise expectations of a rate hike by the Federal Reserve Board
when its rate-setting Open Market Committee meets on June 11-12. Fears of a
eurozone crisis also receded on news that a coalition government had been
formed in Italy, while traders shrugged off the threat of a growing global
trade war as President Trump imposed stiff tariffs on steel and aluminum
from Canada and Mexico, which had been temporarily exempt. The
S&P 500 Composite Index gained 0.5% on the week, while closing the month with a 2.2% overall
Nasdaq Composite Index grew 1.6% on the week, with a 5.3% monthly gain. And with
crude oil dropping 2.8% on the week (down 2.2% in May), Toronto’s
S&P/TSX Composite Index posted a weekly 0.2% loss, but managed to gain 2.9% in the month.
If you’re a regular visitor to our site, you’ll have come across the name
of my colleague Joe Davis, who
serves as Vanguard’s global chief economist. He’s got a mind for figures
and economic theory like few others I’ve encountered. Joe is fond of saying
we should “treat the future with the deference it deserves.” I happen to
think that’s excellent advice. Let me explain.
The April Monetary Policy Report (MPR) from the Bank of Canada is
a stark reminder of just how much the environment has changed in 2018.
While on the one hand the MPR presents an economy evolving pretty much as
expected, it also underscores the key risks to the macro outlook and the
uncertainty about their evolution.
A 5.3% slide in the price of
crude oil this past week hit energy stocks, and contributed to lackluster performance
by the major North American stock indices. With no major economic data
points making an appearance last week and the geopolitical situation at
somewhere near a status quo, markets marked time trading in a narrow range
through the week. Toronto’s main benchmark, the
S&P/TSX Composite Index, lost 0.5% on a shortened week of trading, mostly a result of crude oil’s
price slide reverberating through the market’s heavily weighted energy
sector. The big U.S. blue-chip
S&P 500 Composite Index scarcely did any better, gaining only 0.3% on the week, as the price of
crude oil reacted to reports that the Organization of Petroleum Exporting
Countries (Opec) and Russia were planning to increase crude production
after a period of cutbacks. In addition, trading volumes declined ahead of
the U.S. Memorial Day long weekend. The outlier was the
Nasdaq Composite Index, which gained 1.1% on the week, propelled by strength in the Internet and
S&P/TSX Composite Index gained 1.1% on the week, as
crude oil advanced 1.2%, buoying the energy sector, while April’s inflation rate grew
at an annual 2.2%, down slightly from March, easing concerns that the Bank
of Canada might raise rates later this month. The main U.S. stock gauges
edged back slightly on the week, as trade negotiations between U.S. and
China remain murky, and bond yields rose, with the benchmark 10-year U.S.
Treasury note crossing the 3% barrier to end the week at 3.067% on
continuing concerns that accelerating economic growth and rising inflation
will lead to more rate hikes from the Federal Reserve Board. The
S&P 500 Composite Index posted a 0.5% weekly loss, while the
Nasdaq Composite Index was off 0.7%.
Canadian and U.S. stock markets closed Friday with gains on the week after
U.S. consumer prices remained docile in April, with the headline consumer
price index edging up only 0.2% in the month, for an annual rate of 2.5%.
The core rate, which excludes food and energy prices, expanded a minuscule
0.1% in April, for an annual rate of 2.1%, well within the Federal Reserve
Board’s target range. In addition, the benchmark U.S. government 10-year
Treasury note closed the week below the psychologically important 3% yield
threshold at 2.97%, easing immediate concerns of another Fed rate hike. The
S&P 500 Composite Index gained 2.4% on the week, while the
Nasdaq Composite Index advanced 2.7%. Canada’s April job creation numbers showed a loss of 1,000
jobs (as part-time job losses offset stronger full-time gains), helping the
S&P/TSX Composite Index rally 1.6% on the week as pressure for another rate increase by the Bank of
Crude oil gained another 1.0% on the week, giving additional impetus to Canada’s
A rally in technology stocks on Friday, led by a surge in shares of
Apple Inc. (NASDAQ: AAPL), boosted the tech-weighted
Nasdaq Composite Index to a 1.3% gain on the week. And while the blue-chip
S&P 500 Composite Index advanced 1.3% on Friday, the index failed to gain on the week, closing just
a hair below breakeven, as traders reacted to disappointing job creation
numbers in April, with 164,000 new non-farm jobs created, while the U.S.
unemployment rate dropped to 3.9% from 4.1%, the lowest in about 18 years.
The yield on the U.S. 10-year Treasury note, meanwhile, retreated 1.3 basis
points, ending the week at 2.946%. Toronto’s benchmark
S&P/TSX Composite Index closed slightly above breakeven on the week, against a backdrop of economic
growth as February’s GDP posted a 0.4% monthly increase (3.0% annual rate),
while the price of
crude oil gained 2.6% on the week, lending support to Canada’s energy sector.
Recently asked questions from the field: Does the recent drop of
Facebook Inc. (NASDAQ: FB) offer us an opportunity to add a megacap name (generally, stocks with a
market capitalization of more than $300 billion) to our portfolios? If
Washington decides to increase regulations on technology companies, would
that impact megatech stocks enough to provide entry points? Here are some
thoughts on Pender’s investment strategy as it relates to our analysis of