RBC Dominion Securities Inc. Global Insight Daily July 26, 2019 Good morning all, It was a fairly quiet week on the markets as investors witnessed unconvincing moves in most stock and bond markets. Canadian stocks are up marginally with cyclical stocks leading the way while in the US, stocks are flat as a whole, though this masks differing fortunes for companies that reported good profits versus those who did not. EU markets were up 1.5% on the hopes of an ECB interest rate cut (which did not happen this week!?) while Emerging markets are down marginally. Interest rates stayed largely the same while oil gained 1% and the Loonie gave back some recent gains, shedding about 1% versus the US buck. Earnings week saw some big announcements as the ‘not bad’ outlook remains intact for corporate America. The big winners this week were UPS (which saw a 17% jump in the stock price), UTX, Visa, Facebook, Intel, Google (their shares are up over $70 Billion…equal to more than half of the market value of RBC!), Starbucks and McDonalds. Many of the great ‘growth companies’ (companies
Transcript
RBC Dominion Securities Inc.
Global Insight Daily July 26, 2019
Good morning all,
It was a fairly quiet week on the markets as investors witnessed unconvincing
moves in most stock and bond markets. Canadian stocks are up marginally with
cyclical stocks leading the way while in the US, stocks are flat as a whole, though
this masks differing fortunes for companies that reported good profits versus
those who did not. EU markets were up 1.5% on the hopes of an ECB interest rate
cut (which did not happen this week!?) while Emerging markets are down
marginally. Interest rates stayed largely the same while oil gained 1% and the
Loonie gave back some recent gains, shedding about 1% versus the US buck.
Earnings week saw some big announcements as the ‘not bad’ outlook remains
intact for corporate America. The big winners this week were UPS (which saw a
17% jump in the stock price), UTX, Visa, Facebook, Intel, Google (their shares are
up over $70 Billion…equal to more than half of the market value of RBC!),
Starbucks and McDonalds. Many of the great ‘growth companies’ (companies
whose earnings growth rates exceed the norm) have been able to continue to defy
the law of averages by outpacing the competition. The poor reports came from
Caterpillar, Boeing and Amazon, with the latter selling off this morning. Taken as
a whole it has been a very solid earnings season.
Economic data in the US came in rock solid, with GDP growth clicking in at 2.1%
this morning, better than had been expected. While the US government and
corporations are paring back their spending, the US consumer is picking up the
slack and said consumer has lots of room to continue to do so. Global GDP growth
is forecasted to be 3.2% for the next 12 months so I continue to believe this is a
constructive investment environment. Job data has been nothing short of
tremendous and while manufacturing has noticeably slowed (as a result of trade
disputes), services (which are a far bigger component of the US, and global,
economy) are hanging in there just fine. I believe that even without the aid of the
Fed this economy seems more than able to sort out its own issues.
And in an environment of solid corporate earnings and steady economic growth
the Fed continues to signal they are about to cut rates to spur the economy on in
what I continue to feel is a foolish move. Cutting rates in a solid economy is like
having a doctor who prescribes antibiotics to a patient who has a garden variety
cold; sure it may help but it may lessen the impact of antibiotics when you have a
more serious illness. According to the Wall Street Journal, officials of the Federal
Reserve signaled a 0.25% rate cut at the upcoming July meeting, with the
possibility of further reductions. Market expectations for a 0.5% cut rose on
Thursday after New York Fed President John Williams indicated that more
aggressive action is necessary when the economy softens while interest rates are
already low. The market is currently pricing in a 0.5% cut with a 20% probability
with everyone else expecting a 0.25% cut. Following the speech, a New York Fed
spokesman clarified that the speech was a display of 20 years of academic
research and practice rather than an indication of policy action at the upcoming
meeting (in other words, these Fed-watchers should cool their jets). The Wall
Street Journal noted that Fed officials do not believe recent economic data
releases point to an imminent downturn, and that officials continue to weigh
developments in trade and inflation. Investors will be watching for signals of the
Fed’s plans beyond this month at the upcoming meeting July 30 and 31. With the
market now pricing in a 100% chance of a rate cut, the Fed would be compelled to
clearly signal if they are not going to cut rates in order to prep the market and
they have not done so…you can expect the Fed to cut at the end of the month and
there should be some interesting moves in the investment world in and around
those days.
This week I have included a link to RBC’s quarterly Perspectives newsletter from
this Spring. In it you can click on any articles that may apply to you including: tax
planning, financial literacy for young adults, long term care and health topics and
