**September 25th Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer
- JMRD Strategy Comments
- NBFM Monthly Economic Monitor
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
JMRD Strategy Comments
This week, markets continued with the volatility theme with the Volatility Index (VIX) continuing to trade above the 20 level. The Volatility Index (VIX) is a contrarian sentiment indicator that helps to determine when there may be too much optimism or fear in the market. When sentiment reaches one extreme or the other, the market typically reverses course. While we have seen brief periods where the VIX has traded above 20, this is the longest period (one-month) where it has continued to trade at elevated levels since 2011. It can also indicate the market’s indecision as we have seen big up days and big down days. The increased volatility can be a good period for short term traders but often is a ‘frustrating’ time for long term investors, with no clear trend wither way. Next week, the final quarter of the year begins and investors will turn their eye towards 2016. We expect to see an active tax-loss selling period and we will be interested to see whether investors focus on this year’s worst performers, for a rebound, or whether this year’s leaders continue to lead the market. As Nike (Up 7% this week, new year-high) and Caterpillar (down 10% for the week, new year-low) showed this week, there are almost always winners as well as losers in any market environment.
NBFM Monthly Economic Monitor – October 2015
- After a tepid first half of 2015, the global economy seems to be picking up speed thanks to better growth in the OECD, the latter led by a resurgent US. In sharp contrast, emerging economies seem to be struggling to adapt to the new world of sub-7% growth in China. Making matters worse is the growing risk of disorderly deleveraging in emerging markets where the sizable amount of USD-denominated debt has become harder to service after the dollar’s surge. That’s the major downside risk to our forecast for the global economy to grow 3.5% in 2016.
- The US is a beacon of hope in an otherwise dull global economy. While the outlook for its exporters isn’t great considering the appreciating dollar and weak world growth, domestic demand remains rock solid. A strong labour market is fueling consumption growth while investment spending is picking up as corporations attempt to boost productivity. We continue to expect the world’s largest economy to post above-potential growth of around 2.5% this year and next. But given current uncertainties, including a fragile global economy and the possibility of a government shutdown in the US, the Fed may want to wait until at least December to start a new tightening cycle.
- If Canada was ever in recession in the first half of 2015 it seems to have come out of it in the third quarter. A resurgent US is providing a lift to exporters and hence Canada’s economy. A much-depreciated C$ is making Canadian goods more competitive abroad and giving a helping hand to services industries such as tourism. Still, despite an expected second half rebound, real GDP growth should be no better than 1.3% in 2015 courtesy of a disastrous start of the year. Don’t expect a significantly better performance in 2016 unless Ottawa delivers much-needed fiscal stimulus to address the decline in the economy’s potential.
(Full report attached)
JMRD Basket Corner
Magna (MG) – “Don’t Ignore the Future Growth in Magna” Magna was down 3.5% this week after a volatile week for the automobile parts sector.
All-Cap Growth Basket
Alimentation Couche-Tard – “Say goodbye to Mac’s: Convenience store to be retired, rebranded as Circle K in 2017”
Element Financial (EFN) – “EFN Receives Second Investment Grade Credit Rating” – on Element receiving a BBB credit rating from DBRS which will help reduce the company’s funding costs. Research note attached. EFN
U.S. Growth Basket
Nike (NKE) – Nike Sprints Past Estimates with Help from China: Nike’s (NKE) 1Q China sales growth comes in at a better-than-expected 30%. Stifel’s Jim Duffy was looking for 17%. It comes at a time when many US businesses have cited a slowdown in China as a stumbling block. Another key number watched by analysts — worldwide constant currency futures orders — rose 17%, also surpassing Wall Street estimates. NKE is earning fatter profits as well, saying gross margins are 47.5%, against Duffy’s expected 47.2%. NKE typically beats Wall Street estimates in 1Q, and today is no exception. Shares were up 9% on Friday to a new year-high. Nike is the largest holding in the JMRD U.S. Growth Basket.
Starbucks (SBUX) – Mobile the Swing Factor in Starbucks’ Growth: Starbucks (SBUX) in F3Q was processing 9M mobile-pay transactions/week, and with the effort rolling out nationally Wells Fargo says that could reach 13M by the end of the FY which starts Monday. That would equal 27% of US transactions, versus 20% last quarter. But the investment bank says that instead of 13M the number of mobile transactions in a year reaches 14-15M, that would boost US same-store sales a percentage point or 2 above current estimates and give companywide EPS upwards of a 3% boost. “Further we believe increased attachment could drive higher ticket sales from mobile users, further accelerating comp growth.”
- “This isn’t your grandfather’s retirement! Why the 70% income target no longer makes sense” (Financial Post)
- “How to time the collection of CPP and OAS” (Globe and Mail)
- “A report card for retirement income: What grade does Canada get?” (Globe and Mail)
Week At a Glance
See Week At a Glance Report
Reads of the week
- “OPEC’s Family Feud” (Bloomberg) Members squabble with one another, but no one wants to leave.
- “Complexity as a Default” (A Wealth of Common Sense)
- “One Simple Chart That Shows Why Caterpillar Is Getting Slammed” (Bloomberg) Until the cycle turns for emerging markets and commodities, there’s not much Caterpillar can do
- “Why this is not the start of a bear market” (Humble Student of the Markets) A good encapsulation of the Fundamental, technical and economic outlook
Monday September 28th – U.S. Personal Income, U.S. Personal Spending, U.S. Pending Home Sales
Tuesday September 29th – Canadian Industrial Product Price, Canadian Raw Materials Price Index, U.S. Consumer Confidence Index
Wednesday September 30th – Canadian GDP, U.S. ADP Employment Change
Thursday October 1st – U.S. Initial Jobless Claims, U.S. Manufacturing PMI, U.S. ISM Manufacturing, Wards Total Vehicle Sales
Friday October 2nd – U.S. Change in Nonfarm Payrolls, US. Unemployment Rate, U.S. Factory Orders
Monday September 28th – DHX Media
Tuesday September 29th – Costco Wholesale
Wednesday September 30th – None
Thursday October 1st – None
Friday October 2nd – None
Have a good weekend!