Issue #57 - "You ain't seen nothin' yet"

Like many of you, I watched the evening news last night and saw the stock market movements take center stage.  The fear machine was in top gear as words like “plummet”, “nose-dive”, and “correction” filled headlines.  The purpose of this special issue of Innova Market Insights (IMI) is to put the market movements into perspective and keep you up to date on the type of market environment we want to see before deploying our cash positions and “buying low”.   


The term “market correction” signifies any drop in market values in excess of 10%.  In this case the leading US stock markets, the DOW Jones and the S&P500, have entered “correction” territory when compared to their all-time highs reached on January 26th.  With even just a tad-bit of historical context, we see that these ‘corrections’ are not as devastating as they seem at first glance.  When you factor in the stock markets’ performance since January 1st of this year, the Dow Jones is down a mere 4.39% and up 17.35% in the last 365 days. Similarly, the S&P500 is down 4.45% year-to-date while the 1-year number stands at +11.09%.  These figures are hardly as devastating as they are being made out to be and nowhere near the territory in which real bargains can be found.

In Canada, the S&P/TSX is down 8.34% since January 1st and down 3.24% over the last year as it continues to lag behind worldwide indexes.  With this in mind, we are starting to see some potential value on the TSX and may recommend some buys should the Canadian markets fall further, despite the comparatively poor economic outlook for the country as well as the persistent NAFTA risks.


The question now is what caused this sudden reversal? The selloff began following January’s US jobs numbers report, which remains robust.  Strong job numbers imply continued economic expansion, which increases inflationary pressures and in turn, the odds of further increases to interest rates.  As we discussed in our most recent IMI “The Impact of Rising Rates on Investors”, increases by the Federal Reserve to their overnight lending rate impacts all forms of investments.  The potential for further increases triggered a substantial risk re-allocation in the markets and spiked volatility.  As investors seek to protect the gains that the generous US market delivered over the past year, sellers are outweighing buyers and the markets are tumbling. 

As the title of this special report suggests, we feel that this is just the beginning of a market sell-off that will take most of 2018 to unwind.  Investor sentiment has turned quickly and it won’t take long for investors to panic and send the markets tumbling further.

We believe a good market entry point for the US is near 20,500 for the Dow or 2,100 for the S&P500.  In Canada, we are approaching valuations which we deem to be attractive and may recommend some allocations in the near term.  Please do not hesitate to contact me if you would like to discuss the current investment environment or your portfolio. Likewise, we may reach out to you in the coming weeks to discuss your account and possible opportunities.

 

Innova Wealth Management is a trade name of Aligned Capital Partners Inc. (ACPI). Jean-François Démoré, as an agent of Innova Wealth Management/ACPI is registered to provide investment advice in the provinces of Ontario, Quebec, and British Columbia. Investment products are provided by ACPI, a member of the Investment Industry Regulatory Organization of Canada (www.iiroc.ca) and the Canadian Investor Protection Fund (www.cipf.ca). All non-securities related business conducted by J-F Demore as a representative of Innova Wealth Builders is not covered by the Canadian Investor Protection Fund and is not under the supervision of ACPI.


The information contained herein was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any securities mentioned. The views expressed are those of the author and not necessarily those of ACPI.

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