Even though markets are off their lows in December, there is still a ton of investor doom and gloom out there. Certainly, the weather across much of Canada isn’t helping people’s moods either. So, being a bearer of good cheer, we thought in the throes of winter we would come up with five wonderful points to make investors feel a little bit better while they lock themselves in their houses and curl up to a Netflix marathon.
Hey, stock markets are actually up!
North American markets are on a tear, thanks to Fed comments on interest rates, low valuations (after the big declines last year) and stronger corporate earnings (go Facebook!). In fact, the TSX index is having its best January in 39 years. That, combined with a stronger Canadian dollar, means a U.S. investor buying the market in Canada is already up 12 per cent this year. Sure, last year started great as well, and ended badly, but for now, just enjoy the party.
Giant quick profits can still be made in the market
And when we say giant, we aren’t talking a measly 12 per cent. We did a screen on companies with a market cap of more than $100 million whose share prices have already done well in 2019, even though the year is only a month old. We found 42 companies whose share prices have risen more than 40 per cent already this year. How about Auralite Investment ( AAAA on TSX-V), up 346 per cent, or Insmed (INSM on Nasdaq), up 90 per cent, or our very own TSX Index stock Canopy Growth (WEED on TSX) up 72 per cent. With returns like those, some investors might be sitting back dreaming of retirement just four weeks into the New Year. Those returns will certainly warm up your winter.
The Fed this week said it will be “patient” on future rate increases, and this meant investors could continue their month-long New Year’s Eve party with more buying. After so much negativity, some analysts are even talking about “panic buying” now that the picture on interest rates is becoming clearer. A lot of investors sold in the fourth quarter of 2018, whether due to fear, re-positioning or tax losses. Now, investors are finding themselves flush with cash and a market that might be running away from them. Of course, the smart investors didn’t panic in December and are fully enjoying the market party now. Will it continue? Let’s look at our next — very important — point.
Sure, a few companies such as Nvidia (NVDA on Nasdaq) have disappointed investors with weak earnings forecasts. But for the most part, corporate earnings have been decent, and at the very least way better than what investors feared. Apple’s results boosted confidence, and then Facebook — the company everyone loves to hate — reported a giant record quarter of profits. FB’s earnings were seven per cent higher than estimates. There are still many more giant companies left to report, and things can change quickly, but for those with the rose-coloured glasses on, things are looking good in the corporate earnings world.
Dividends and Takeovers
We are having trouble keeping track of all the takeovers in the cannabis sector, with the hostile bid for Aphria being the latest saga. But other sectors are seeing merger activity as well. Corporate confidence is improving (certainly from the fourth quarter’s depression-levels) and interest rates are benign. With the shift in valuations, corporate boards are starting to think that buying is easier and cheaper than growing on one’s own. If corporations are not buying other companies, they are raising dividends. Chevron — an oil company, of all things — was just another in a long series of companies raising their payouts this week. Income investors are happy — realizing their GICs never raise their payments, they are slowly coming back into dividend stocks.
Of course, the million-dollar question is, after a giant January rally, what does the rest of the market bring? Predictions are tough, of course, but we can remind investors that it is quite rare for markets to decline two years in a row. There’s 11 months left to the year, but at least we are off on the right foot. We don’t want to be overconfident, of course, but few if any ‘bears’ make the Fortune Rich People lists: Confidence usually works in the stock market.
Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (http://www.5iresearch.ca).