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J.C. HOOD INVESTMENT COUNSEL
INC. |
Hello Everyone:
Short business/holiday in Quebec this week (Oct. 8-11). I will be checking my email and voicemail or you can call Dave Tait at 705-773-2521.
Binary Markets: Crash or Rally. I read an article last week commenting that investors’ perceptions of market volatility were too narrowly focused on climatic events. Either the market is ‘going through the roof’ or ‘it’s going to crash’ rather than the far more typical nuanced advances and declines that occur over many years. During a BNN interview earlier this week, I was asked if the 250 point decline on the Dow indicated that the bull market was over or that the long awaited correction was beginning. Perfectly valid questions, but I remarked that end of quarter volatility is quite common due to ‘window dressing’ that is fund managers, who are required to report their holdings quarterly, often will try to make their portfolios look better by ditching their underperforming assets and buying stocks that had done well. Besides 250 points with the Dow at 17000 really isn’t indicative.
The Bullish Side. Morgan Stanley’s chief market strategist Adam Parker argues that the S&P500 could raise another 50% to 3000 by 2020. As the Globe and Mail’s David Berman said last month, “They contend that the U.S. economy has been slow to shake off the damage sustained from the financial crisis, and is only now emerging from a so-called repair phase and entering the early stages of an expansion… As well, households have been busily lowering their debt level”. This Friday’s better that expected employment numbers support this view leading to a 200 point rally. Slower growth rates outside of the U.S. suggest that markets will not overheat.
Other analysts predictions are not so rosy with BMO Brian Belski seeing the S&P ending this year at 1900 with Goldman Sachs coming in at 2050 and RBC at 2075. Despite the difference in opinion, there does not appear to be anything calamitous on the horizon. As a result, we are maintaining our current asset allocation.
In Canadian markets, the slip in oil prices is a concern but should be taken in context; lower energy costs are better for business, but for oil producers the spread between CDN oils and international Brent prices continue to narrow and production is growing.
Thank you for your business.
John
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