Investors are eager for a touch of Christmas cheer from the U.S. Federal Reserve next week, hoping for signs the central bank may ease up on interest rate hikes next year and spark a Santa Claus rally.
U.S. stocks are having their worst December performance in 16 years with the S&P 500 notching a 5-per-cent drop so far this month. The Fed’s ongoing reversal of easy-money policy is a major overhang, and it is expected to raise rates more at the end of its two-day meeting on Wednesday.
That would mark a fourth consecutive December increase since 2015 when it started gradually lifting them. The question on investors’ minds is whether it could be the last.
“It’s imperative (the Fed releases) a dovish statement and an accommodative Q&A session,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. “If not, that would put stocks at risk again.”
“The Fed’s the key to a strong December, and it’s getting late in the year.”
Recent comments from policymakers have fueled expectations for a timeout signal when the rate-setting committee’s statement is released along with officials’ individual projections for how much further they will rise in 2019 and beyond.
“The market’s been under incredible pressure, concerned that the Fed is just going to go charging ahead,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco. “The Fed understands that and from their latest commentary they’re starting to walk it back a little bit.”
U.S. markets have been highly sensitive to any hint that the Fed is ready to slow down or even take a pause. The central bank has lifted rates eight times since December 2015 in a bid to restore them to normal after having slashed borrowing costs to near zero to combat the financial crisis a decade ago.
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--Stephen Culp, Reuters
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Stocks to ponder
Brookfield Property Partners (BPY-UN-T). This stock has a hefty 7.6-per-cent indicated distribution yield and that could motivate a bounce in the price. The unit price has been sensitive to Relative Strength Index (RSI) buy signals over the past 24 months – and such a signal was reached this past week – although rallies have been brief in some cases. Scott Barlow takes a look at this stock as part of this week’s overbought and oversold stocks on the TSX (for subscribers).
Johnson & Johnson. (JNJ-N). Shares of Johnson & Johnson fell 10 percent on Friday and were on track to post their biggest percentage drop in more than 16 years, after Reuters reported that the pharma major knew for decades that cancer-causing asbestos lurked in its Baby Powder. The decline in shares erased about $40 billion from the company’s market capitalization, with investors worrying about the impact of the report as it faces thousands of talc-related lawsuits. Reuters reports.
The Rundown
Wealthbar acquisition marks CI Financial’s entry into digital-advice space
Investment giant CI Financial is stepping into the digital-advice business after acquiring a majority stake in robo-adviser Wealthbar Financial Services Inc. The two firms announced the agreement on Friday morning but did not disclose financial terms of the deal, which is expected to close in January, 2019. Vancouver-based Wealthbar, which first launched in 2014 and offers online portfolio management to investors, will continue to operate as a stand-alone business. Clare O’Hara reports (for subscribers).
Why energy stocks are still in the dumps despite Canadian crude oil’s tremendous rebound
The plan to cut production in the oil patch seems to have brought about a near-miraculous recovery in Alberta crude prices, but energy investors aren’t buying it. In less than two weeks since the province of Alberta ordered oil companies to curtail output starting in the New Year, Western Canadian Select (WCS) has nearly doubled in price, taking a huge discount on Canadian oil back down to normal levels. Oil and gas stocks, on the other hand, have not only sat out the commodity rebound, they have continued to decline. The S&P/TSX Composite Energy Sector Index is down by 2 per cent since production cuts were announced, leaving the sector’s total loss at 21 per cent since July. Tim Shufelt reports (for subscribers).
Short sales on the TSX: What bearish investors are betting against
Bearish sentiment on Canadian stocks recently fell back but is still elevated. One indication is the trend in the percentage of shares short for the iShares S&P/TSX 60 exchange-traded fund (XIU). After a sharp run-up from September, the percentage retreated during the past month – but with the help of a small uptick it remains at a high level, near 10 per cent. Larry MacDonald takes a look at the most heavily shorted stocks on the TSX.
Four proven dividend growth stocks now in the penalty box
One of the benefits of owning dividend growth stocks over the long term is that you often get strong share price gains as well. But in the short term, dividend growth stocks aren’t always showered with affection by investors. A quick check of the S&P/TSX 60 index of big blue chips shows a few stocks with double-digit dividend growth over the past five years and double-digit share price declines the past 12 months. If you’re looking for opportunities to get into proven dividend growth stocks at marked down prices, check out Rob Carrick’s list of stocks to research further (for subscribers).
Others (for subscribers)
How to protect portfolios from debt market upheaval in 2019
Bond giant Pimco expects 30% chance of U.S. recession in 2019
Friday’s analyst upgrades and downgrades
Friday’s Insider Report: Chairman invests nearly $265,000 in this stock yielding over 7%
This key interest rate is flashing a warning sign about buying a house
Six highly rated dividend stocks from the toy industry
Others (for everyone)
Celebrate the holidays by singing The 12 Claims for Taxes
Ask Globe Investor
Question: Our financial adviser at one of the big banks has placed a large portion of my RRSP into a bond fund. That bond fund over the past 2-3 years has consistently lost money. I am currently down about $3,500. Why do financial advisers place investor money in these bond funds? After the MER, he is earning about 2.5 per cent with the three other funds in my portfolio. The three other funds are invested in equities. What is your view of the investment of our money in the bond fund?
Answer: Fixed income (bond) funds are typically part of a balanced portfolio. They provide stability in the event of a major pullback in the stock markets. The downside is that bond values fall as interest rates rise and that’s the environment we are in right now. It’s the direct opposite to the profits these funds produced when interest rates declined sharply after the crash of 2008.
That said, you should check to see what type of bond fund you are holding. The average annual three-year return for a Canadian fixed income fund to Sept. 30 was 0.87 per cent. Global fixed income funds did a little better, at 1.31 per cent. That’s not a lot, but it’s not a loss either. Did you count the distributions you received when calculating your loss?
If you don’t want to keep holding the bond funds, tell your adviser to switch. He would probably gladly accommodate you; he gets a higher trailer commission from an equity fund than from a fixed income fund. But keep in mind that, if you may that move, you are exposing yourself to greater losses if the stock market continues its current downtrend.
--Gordon Pape
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What’s up in the days ahead
The recent stock market uproar presents an ideal opportunity to fix a client-adviser relationship gone sour. Rob Carrick will tell us how to do that this weekend.
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Compiled by Gillian Livingston