Colin Cieszynski, chief market strategist, SIA Wealth Management
FOCUS: Technical analysis
Top Picks: BMO Ultra Short-Term Bond ETF, Kinross Gold, Costco
MARKET OUTLOOK:
August to October has historically been the weakest and most volatile time of the year for equities, and this year appears to be following the usual pattern. Stocks rallied in early July, but in the last few days they have turned decisively downward for a number of reasons.
First, the reaction to earnings season has been neutral to negative. Although a few stocks have rallied on positive surprises, the majority of companies have not moved or have sold off, capped off by last week’s 20 per cent-plus post-earnings plunge by Intel. We are now past the peak of earnings season in the U.S. and Canadian earnings peak over the next ten days except for U.S. retailers and Canadian banks later this month.
Political uncertainty and strife have increased significantly over the last several weeks. In addition to the U.S. election campaign heating up, political strife has ramped up in Europe and the Middle East to the point where it has become hard for traders to ignore the risks of upheaval.
Signs of a crumbling global economy have been growing for some time. China has been struggling for months, while two interest rate cuts from the Bank of Canada have confirmed a softening economy. Last week, confidence in the U.S. economy – one of the last big dominoes still standing – started to crumble following a string of disappointing employment reports. Commodities like copper and crude oil have been declining for weeks on signs that resource demand could slow, but this concern has now shifted over to a dampened outlook for corporate earnings, sparking a selloff in stocks.
Meanwhile, signs of eroding investor confidence and increasing fear have emerged in several places. The VIX Volatility Index has spiked upward, and the price of gold has held steady following recent selling. Even the Japanese yen appears to have regained its status as a haven for capital after several years on the outs after the Bank of Japan raised its benchmark interest rate back above zero. On the other hand, parts of the market which had benefitted from high investor confidence such as cryptocurrencies and small caps have come under pressure, indicating that investors’ appetite for risk has decreased.
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BMO Ultra Short-Term Bond ETF (Accumulating Units) (ZST.L TSX)
Considering the potential for volatility in the next three months, moving some assets to safety appears prudent. Investors often ask me where they can park capital in times of volatility. Money Market ETFs hold bonds maturing in less than three months. Another ETF we have used in our portfolios in the past is the BMO Ultra Short-Term Bond ETF. It can hold bonds with maturities of up to one year, giving it the potential for income pickup and flexibility in holdings relative to money market funds. This is one of the BMO ETFs which offers accumulating units which means investors can roll the income back into units of the fund, which is more tax efficient for non-registered accounts.
Gold has long been seen by investors as a haven for capital in volatile times. Kinross is currently the top ranked stock in the SIA TSX 60 Report even through the market swings of the last week.
COST has been one of the highest ranked stocks in SIA U.S. relative strength reports. Discount retailers such as Costco (and Dollarama in Canada) have been attracting interest from investors as potential defensive plays in a time of high inflation and a weakening economy.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ZST.L TSX | N | N | N |
| K TSX | N | N | Y |
| COST NASD | N | N | Y |
Past Picks: JUNE 20, 2024
APPLE (AAPL NASD)
- Then: US$209.68
- Now: US$212.70
- Return: 1%
- Total Return: 1%
GENERAL MOTORS (GM NYSE)
- Then: US$47.77
- Now: US$41.25
- Return:-14%
- Total Return: -14%
DOLLARAMA (DOL TSX)
- Then: $122.70
- Now: $126.74
- Return:3%
- Total Return: 3%
Total Return Average: -3%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AAPL NASD | N | N | Y |
| GM NYSE | N | N | N |
| DOL TSX | N | N | Y |