Investment

Q1 investment verdict? 'Not good, but not horrible': McGeever – Financial Post

Published

3 years ago

March 30, 2022

Harry Miller

Reuters

Jamie Mcgeever

ORLANDO — The first quarter was a scary ride for most investors but those who stuck to a conventional ’60-40′ portfolio of stocks and bonds escaped relatively unscathed.

Having endured an energy price shock after Russia invaded Ukraine, rising interest rates and U.S. bond market plunge, and wild divergent swings in stocks and commodities, investors will be glad to see the back of the first quarter.

But the benchmark, long-term ’60-40′ equity/fixed income investment portfolio held up reasonably well. That’s because most of the pain came on the smaller bond side of the portfolio, and because the remarkable rebound on the larger stocks side late in the quarter significantly reduced overall losses.

According to Barry Gilbert at LPL Financial in Boston, a simple portfolio weighted 60% the S&P 500 and 40% the Bloomberg aggregate U.S. bond index lost around 4% in the January-March period.

That was ‘only’ the 19th worst performance out of 185 quarters going back to 1976, when the aggregate bond index was launched. There have been 47 ‘down’ quarters in total, the worst of all in late 2008 when losses topped 11%.

The average decline of these ‘down’ quarters is around 4%, roughly where the portfolio will close the current quarter.

“The first quarter was a big shock for investors. But if you’re looking at 60-40, it’s not good, but it’s not horrible,” Gilbert said. “We’ve been a little bit spoiled by the long bull market in bonds and sometimes people forget that bonds have risk too.”

Gilbert notes that the aggregate index comprising Treasuries, investment grade corporate and mortgage-backed bonds is down around 6%, on track for the third worst quarter since 1976. S&P 500 total returns are down around 2.5%

Other cuts of the U.S. bond market show the first quarter was equally bleak historically. The Bank of America Treasuries index lost 6% and the corporate bond index lost 9%, both the worst in at least 25 years.

Joe LaVorgna, chief U.S. economist at Natixis, notes that an index of the two-year Treasury note as measured by its weekly total return compared with a year earlier had its biggest fall ever, even worse than the bond market routs of the early 1980s and 1994.

Yields have shot up enough, and it may be time to buy.

“A person of courage would get long the long end. The market is pricing in a lot of Fed tightening, probably too much. The slope of the curve gives me confidence that the front end will rally at some point. Perhaps sooner rather than later,” he said.

SHAFTS OF LIGHT

If the 60-40 investor is feeling any relief right now it is thanks to the rebound in stocks. As recently as March 15 the S&P 500 was down 14% year-to-date and on March 14 the Nasdaq confirmed a bear market, down 20% from its November peak.

The S&P 500 is back to within 5% of the all-time high it struck on January 4.

It was a similar picture globally. The MSCI World will end the quarter down around 4%, its worst performance since the pandemic crash two years ago. But it was also down 14% two weeks ago, and of the 47 negative quarters since the late 1980s, there have been 21 larger declines.

Valuations have come down and are closer to – although still above – long-term averages, and history suggests that stocks typically rebound after the 10-year U.S. Treasury yield falls below the two-year yield, as briefly occurred on Tuesday.

Recession risks are undoubtedly rising and inverted curves across the rates and bond markets confirm that. But imminent contraction is not in the cards, giving investors scope to push equities higher.

“Overall we find too much negativity rather than too much complacency in markets, and stay with a pro risk stance in our model portfolio,” JP Morgan strategists wrote on Wednesday.

Analysts at UBS note that since 1965 the S&P 500 has returned an average of 8% in the 12 months following an inversion of the 2s/10s part of the U.S. yield curve.

Strategists at Truist IAG calculate that the average return is 11%, based on the previous seven inversions going back to 1978.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever)

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

1 week ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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