BMO chief investment strategist Brian Belski believes that the pace of the U.S. equity market rally is unsustainable and that as a result, the TSX will outperform the S&P 500 in the coming months.
Mr. Belski’s most recent research report outlined how U.S. markets are broadening out – returns are less driven by megacap technology companies and more determined by sectors with slower profit growth rates – and so performance of the S&P 500 will likely be choppy and flat in the coming months.
BMO’s analysis of market history shows that domestic stocks have been able to post solid returns and outperform U.S markets when they are rangebound. Since 1990, S&P/TSX Composite Index returns have exceeded the S&P 500 by 4 percentage points when the latter was relatively trendless. Domestic stocks outperformed 61 per cent of the time.
In addition, the TSX has strong representation in market sectors like energy and financials where relative performance is improving and valuations are below historical averages. The strategist is particularly interested in communications services and real estate stocks where underperformance is significant relative to history.
Mr. Belski developed a stock screen to uncover contrarian buying opportunities with the biggest upside potential if domestic stocks begin to outperform. TSX stocks with market capitalizations above $600-million were filtered to find those with year-to-date price changes ranging between a gain of 10 per cent and a loss of 20 per cent, less than half of analyst earnings revisions were positive, forward price to earnings ratios were below 20 times, and less than 50 per cent of analyst ratings were buys.
The end result is a list of 18 companies representing what BMO calls “Canadian True Contrarian” stocks. These are, in alphabetical order: BCE Inc., Birchcliff Energy Ltd., Bank of Nova Scotia, Cogeco Communications Inc., Canadian Imperial Bank of Commerce, Canadian National Railway Company, Capital Power Corporation, CT REIT, Canadian Tire Corporation, Canadian Utilities Limited, Dream Office REIT, Empire Co. Ltd., Enghouse Systems Limited, Canada Goose Holdings Inc., H&R REIT, IGM Financial Inc., Labrador Iron Ore Royalty Corp, and Richelieu Hardware Ltd.
— Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Extendicare Inc. (EXE-T) As a big segment of the population reaches their later golden years, long-term care is a burgeoning sector that may offer some opportunities, say The Contra Guys’ Benj Gallander and Ben Stadelmann. This stock pays a healthy dividend and could produce some nice capital gains in the years ahead thanks to its growing assets, they say.
The Rundown
Rising commodities are lifting stocks, but not profits. That could be a problem
Commodity prices have been rallying over the past six weeks, but the share prices of major metals producers now face a couple of significant hurdles: high valuations and a challenging earnings season. David Berman reports. Meanwhile, Philip MacKellar of The Contra Guys argues Pan American Silver Corp. (PAAS-T) is the most interesting of the precious metals stocks right now that the newsletter recommends.
How much will you pay in investment fees over your lifetime?
You may or may not know how much you’re paying for investment advice. But you are almost certainly not aware of how quickly those fees can add up when saving for major goals like retirement, says actuary Frederick Vettese. He has a vivid chart to prove it.
Negative equity/bond correlation is positive for 60-40 portfolio
Correlations between U.S. stocks and bonds are weakening and in some cases turning negative for the first time in almost a year, breathing new life into the standard “60-40″ investment portfolio, reports Reuters.
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Ask Globe Investor
Question: I have a question about John Heinzl’s model Yield Hog Dividend Growth Portfolio. If he was to create a similar portfolio of U.S. stocks and exchange-traded funds what would he choose?
Answer: My model portfolio already has some U.S. exposure through the iShares Core Dividend Growth ETF (DGRO-A). In fact, the ETF has been the portfolio’s top performer, with a price gain of about 77 per cent since the portfolio’s inception on Oct. 1, 2017.
One drawback of DGRO, however, is its modest weighting of about 16 per cent in information technology stocks, which have been a key engine driving the market higher. If you are looking to add U.S. exposure to your portfolio, you may want to consider a traditional S&P 500 Index ETF that will give you a tech weighting closer to 30 per cent.
Another advantage is that some S&P 500 Index ETFs trade on a Canadian exchange in Canadian dollars, sparing you the expense of converting your loonies into U.S. dollars at your broker’s unfavourable exchange rate. Examples include the iShares Core S&P 500 Index ETF (XUS-T) and the BMO S&P 500 Index ETF (ZSP-T), both of which charge ultralow management expense ratios of 0.09 per cent. If you’re looking to control currency-related volatility, you can opt for the currency-hedged versions of these funds, which trade under the symbols XSP-T and ZUE-T, respectively.
In my personal accounts, I get all of my U.S. exposure through ZSP (which I can buy and sell commission-free through BMO InvestorLine; several other brokers also offer free ETF trades). I used to own individual U.S. stocks as well, but with so many great companies to choose from south of the border, I prefer ETFs for the simplicity and diversification they provide.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
