In This Week’s JMRD Market Observer
JMRD Strategy Comments
Tax Season Reminder!
JMRD Basket Corner
Week at a Glance
Reads of the Week
JMRD Strategy Comments
The global equity markets continue to hover around all-time highs as we as near the halfway point of the year. The market is faced with various risks each year and even though these obstacles appear different on the surface, they tend be quite similar in the end.
Over the past two years, the debate has raged over whether the U.S. Federal Reserve (FED) would raise interest rates and what the resultant effect would be on equity markets. Higher interest rates usually make equity investments less attractive from a risk/reward perspective and many pundits expected equity prices would fall once the FED began raising rates. After three rate hikes in the U.S. since December 2015, the equity markets are now trading near record levels.
Looking back to November of last year, the market was skittish leading up to U.S. election night. The pervasive view on the street was if Donald Trump and his populist agenda took the White House, the markets would selloff. Those fears were quickly put aside and investors warmed to Trump’s pro-business ways. Meanwhile, in Europe, there have been two key elections thus far in 2017 with one to come in Germany in September. These elections undoubtedly could have and still may put the stability of the Eurozone to the test. If the ever growing anti-EU, populist wave were to rule the day in Europe, the markets would most likely turn lower. Despite the pre-election uncertainty, the moderate parties have been victorious so far and most European markets have hit new highs. On top of the elections throughout Europe, North Korea continues to be a threat, the unrest in the Middle-East continues and Russia remains under the microscope. Again, investors continue to look past these issues.
We are now into the month of May, when the ‘sell in May and go away’ theme is widely discussed. It implies that investors should sell their equity securities in early May and buy them back in late October at a lower price. Dates most frequently connected to the strategy by technical and seasonal analysts are May 5 and Oct, 27. However, the data is inconsistent depending on the period analysed. It does not mean we may not see heightened market volatility during the summer months, when trading volumes tend to wane. One could argue that considering the run up we have seen in the financial markets over the last year that this must be the year to move to the sidelines in May. Perhaps that ‘may’ be the case but nobody knows with 100% certainty what will happen. We are currently in the heart of earnings season and the results have been very good thus far. Seventy-five percent of S&P 500 companies that have reported to date have exceeded earnings expectations and 66% have exceeded revenue expectations. Revenue growth has been sluggish in the past but if this proves to be a turning point, then markets should continue to grind higher. Job growth has been quite good both in the U.S. and Canada as well, which tends to lead to more consumer spending and confirms the revenue growth story.
That’s not to say that we should be complacent as we head into the summer. Canada’s housing market is still booming and likely extended in certain parts of the country. OPEC ministers will be meeting at the end of May to discuss whether to extend production cuts. The final announcement will move energy markets one way or the other. Trump has yet to convince the public that he can get his tax reform and infrastructure spending plans passed. There is another presidential election of note in Europe which will be in Germany this September. Incumbent Angela Merkel has been instrumental in keeping the EU together and any change in the status quo would disrupt global markets.
We continue to believe that having an investment plan and sticking to, in good times, but especially in turbulent markets, will help you reach your final financial destination. Please do not hesitate to call us if your situation has changed or if you would like to chat further.
Tax Season Reminder
As we discussed last week, most of you have probably already received your “Notice of Assessment” from the CRA. We find the information included on that form very helpful in our effort to make sure all of our client’s investment and financial plans are complete. It includes information on RSP contributions and earned income, among other information. We ask that JMRD clients send copies of this form to your main JMRD advisor so that we can make sure all is in order for 2017. Thank you in advance.
JMRD Basket Corner
TD Bank (TD) & Royal Bank (RY) – “Tempted to sell your Canadian bank stocks? Just stay put. See the full article
Keyera (KEY) – Q1/17 above our expectations + 6% dividend raise: KEY reported Q1 adj. EBITDA of $148 mln, ahead of our $141 mln estimate (Street: $154 mln) on stronger contributions from Liquids Infrastructure as condensate volumes jumped +26% y/y. KEY also announced a +6% dividend increase to $1.68/sh annually – slightly below our +8% forecast. See the full article
All-Cap Growth Basket
New Flyer (NFI) – See the full article
Parkland Fuel (PKI) – We are resuming coverage of PKI following its $662 mln equity raise (~24 mln shares, a +23% increase, priced at $27.70), the proceeds to be used to fund the acquisition of Chevron’s Cdn downstream assets (CCL) for total consideration of ~$1.7 bln. The remainder of the transaction is to be funded through a combination of newly issued $500 mln senior unsecured notes (8-year term & 5.625% coupon), a ~$270 mln draw on new credit facilities, a $260 mln intermediation agreement & op. cash flow. See the full article
U.S. Growth Basket
Microchip Technologies (MCHP) – Microchip Technology shares rally as earnings, outlook top Street view
Reads of the Week
- An equity chief at one of Wall Street’s biggest firms breaks down the hottest story in markets right now
- The VIX Tells Us Very Little About Tomorrow All the hand-wringing because the “fear index” has fallen below 10 is a waste of time.
Monday May 15th – None
Tuesday May 16th – None
Wednesday May 17th – Canada Manufacturing Sales;
Thursday May 18th – US Initial Jobless Claims, US PPI
Friday May 19th – Canada CPI, Canada Retail Sales; US Retail Sales, US CPI
Monday May 15th – Cargojet,
Tuesday May 16th – Pengrowth Energy
Wednesday May 17th – Just Energy, Target
Thursday May 18th – CAE Inc.
Friday May 19th – Deere and Co.
Have a good weekend!