Market Update – January 2018

2017 Markets Summary…

Canadian market (TSX) finished 2017 up +5.8%. 

American market (SPX) finished 2017 up 19.4%  (13.4% in Canadian dollar terms for Canadian investors who saw the  Canadian currency rise against the USD 6% largely in the last quarter along with the seasonal move in oil.) 

RSP investing.  Check your assessment notice from CRA from your tax return to see how much you can contribute to your retirement savings plan this year.  You can contribute until March 1, 2018 for a deduction against 2017 income.

TFSA Investing.  As a Canadian investor you are allowed to contribute $5,500 to a tax-free savings account this year, for a total combined contribution room of $57,500 (including previous years).

Consolidation.  If you haven’t, think about consolidating any peripheral accounts into your portfolio here at National Bank Financial.  It allows you to get the full benefit of having an advisor relationship you trust.  If you think about it, you are paying for wealth management and over time we tend to touch on every aspect of your financial health from portfolio, to keeping you tax neutral, to an eventual estate.  If we can’t see the entire picture, it is difficult to adequately design.  It may cost you less money too to run one portfolio versus two and it will be easier to track returns particularly as you age.    

Marijuana.  The notion of a post-prohibition industry surrounding pot might seem, well euphoric.  However, the current run up in pot stocks is a bubble and I believe that this might well be a case of ‘the second mouse gets the cheese’.  When drug companies take a drug through the approval process, it is not unusual to see the stocks run up in anticipation of approval only to fall back again, before moving up on actual EARNINGS.   I don’t think pot stocks will be much different.  We have been in the anticipation period but some of these companies are worth billions with no earnings yet and NO LEGISLATION to provide clarity as to the lay of the land.  I also wonder if regular pot users would not be inclined to just grow their own over a government taxed product. 

Bitcoin.  This is called a cyber currency but in actual fact, I would call it a commodity as it has limited supply. A great means for the dark money to move it around, but something that lacks any fundamentals as an investment.

Bonds.  They continue to offer a negative rate of return.  Five year Canada bonds pay 1.89%  I believe interest rates will continue to move up in 2018, led by the U.S. Fed.

Stocks.  U.S. markets look extended and I don’t think it would be realistic to expect a repeat performance in 2018. That said, that market might look extended for some time as interest rates are relatively low along with unemployment.   The worry is the Trump administration, which seems more surreal as time passes.  Mr. Mueller is starting to make indictments and U.S. mid-term elections in November could end Republican control over the U.S. government.

Covered writing.  I like long term calls on U.S. stocks to provide income and some protection against any potential market pullback.

Stock dividends.  Canada pays nice dividends – even in the energy space, which has been an underperformer over the year despite a late year move on higher oil prices into winter. Remember that dividends are the life jackets around stocks that allow you to get paid – when you have to wait.  Canadian bank stocks are at price points where we historically have seen stock-splits.

Happy New Year!

I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial.

 

National Bank Financial 

Rob Hunter
Vice President
Senior Investment Advisor

 

Sources: Stockcharts, Reuters 

National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). 

This information was prepared by Rob Hunter,  Senior Investment Advisor with National Bank Financial.  The particulars contained herein were obtained from sources that we believe reliable but are not guaranteed by us and may be incomplete.  

The opinions expressed are based on our analysis and interpretation of these particulars and are not to be construed as solicitation or offer to buy or sell the securities mentioned herein.  National Bank Financial may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive remuneration for its services.  Rob Hunter, National Bank Financial and/or its officers, directors, representatives, and associates may have a position in the securities mentioned herein and may make purchases and / or sales of these securities from time to time in the open market or otherwise. 

The opinions expressed herein do not necessarily reflect those of National Bank Financial.  

Several of the securities mentioned in this article may not be followed by National Bank Financial’s Research department.

The securities mentioned (inclusive of income trusts and option strategies) in this article are not necessarily suitable to all types of investors.  Income trusts and preferred shares are equity investments. Please consult your investment advisor to discuss investment risks.  All prices and rates are subject to change without notice.  Stocks typically fluctuate in value.  Stock values can go to zero.

Selling calls against stock (Covered Writing):  Shares may need to be sold at the strike price of the option at any time prior to expiration.  If the calls are assigned, further opportunity for appreciation in the underlying security above the strike price is foregone.

Risk/Reward of the strategy = Strike price minus the purchase price of the underlying plus the premium received from the sale of the call.  The maximum loss is the same as holding a long position less the premium received.

The investment advice given only applies to residents of the provinces of British Columbia, Alberta, Manitoba and Ontario.

National Bank Financial is a member of the Canadian Investor Protection Fund. 

 

 

 

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