Briefing highlights
- Can TSX stage ‘monster rally’
- Markets at a glance
- Apple bruised by outlook
- Unemployment dips to 5.8 per cent
- U.S. jobs growth rebounds
- Trade deficit narrows
Most Canadian-centric investors we speak with are resigned to wait for the perfect ‘trigger’ that will represent the buy signal
— Brian Belski, BMO
Brian Belski suggests the Toronto stock market could yet stage a “monster rally” by year-end, though the chief investment strategist at BMO Nesbitt Burns is having some issues with his earlier, even more aggressive call.
Mr. Belski still believes the S&P/TSX Composite Index will hit his target of 17,600 in the next 12 months. But it’s “now highly unlikely” to happen before the end of the year, a scenario he had been projecting.
“However, we would not be surprised if the TSX musters a monster rally (alongside the U.S.), closing between 16,500 and 17,000, which still implies a 10- to 13-per-cent return as of [Wednesday’s] close,” Mr. Belski said, adding that he’s still sticking to his target.
“Our models are what our models are – stocks just need to comply,” he added in a report Thursday.
“Our models are based on fundamentals, and fundamentals remain clearly positive. In fact, our earnings models have consistently underestimated 2018 [earnings per share], with all four of our EPS models underestimating earnings.”
As The Globe and Mail’s Jennifer Dowty reports, Mr. Belski had projected the index would surge by the end of the year.
But, Mr. Belski said this week, Canadian stocks have been hit by “overwhelmingly negative mantra, emotion and sentiment” that got no help from the volatility in U.S. stocks.
Many investors believe the tide will turn, though the question is when.
“Investors seem to not really believe that the broader TSX is actually displaying improving, if not outright strong, fundamental metrics in terms of earnings growth, valuation and operating performance,” Mr. Belski said.
“Instead, it seems that most Canadian-centric investors we speak with are resigned to wait for the perfect ‘trigger’ that will represent the buy signal,” he added.
“Admittedly, the dark clouds of policy are the easiest thing to blame. However, we would instead focus on the fundamentals which can, will and should ultimately win.”
And for the record, he cited these facts:
One: There hasn’t been a “traditional” 10-per-cent correction on the TSX since 2015.
Two: Corrections traditionally average 125 days.
Three: This correction has now run for more than 110 days, if you assume it bottomed on Oct. 29.
Four: The timeline to a fresh high averages 288 days, with the “shortest rebound” having been just 38.
Five: “The TSX typically rebounds 13 per cent within three months of the trough, with the maximum correction rebound being 28 per cent within three months.”
Read more
- Jennifer Dowty: TSX at 17,600 by year end? Believe it, says BMO’s chief investment strategist
- The ‘frankly astonishing’ lost decade on the Toronto stock market. (Now, if you’d bought a house in 2008 …)
- Ian McGugan: The new economic numbers that suggest investors are right to be nervous
- David Berman: The week investors lost faith in Wall Street’s ability to keep the bull market charging ahead
- David Milstead: Pot stocks among the biggest decliners as markets tumble
- You ain’t seen n-n-nothin’ yet: Stock market stress could intensify if ‘real money investors’ capitulate
- Ian McGugan: Three things that could lead to the world’s next financial crisis
- Ian McGugan: Why are investors so gullible?
- Scott Barlow: Earnings growth is strong, so what’s with all this selling?
Markets at a glance
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Apple in spotlight
That happy feeling across financial markets hasn’t spread to Apple, whose shares tumbled after its quarterly earnings report late Thursday.
Apple had strong quarterly results that topped the estimates of analysts, but said its current holiday quarter probably wouldn’t repeat that.
“We see this stock pullback as a good opportunity to buy the stock and believe Apple may more aggressively use its stock buyback,” Citigroup analyst Jim Suva said as the shares slid in after-hours action.
“We maintain our buy rating and lower our target price to US$240 from US$265.”
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Unemployment dips
Canada’s jobless rate is now down to 5.8 per cent.
Unemployment dipped in October from September’s 5.9 per cent as about 11,000 jobs were created, Statistics Canada said today.
The traditionally volatile report showed big swings between full-time and part-time work, however, with the former rising by almost 34,000 positions, and the latter declining by about 22,600.
Among the provinces, employment rose marginally in Saskatchewan, with other regions showing little change, the agency said.
“Canada’s economy isn’t roaring ahead, but it still sits at what looks like full employment, as today’s data clearly underscored in a weak month for exports but a continuing of ultralow unemployment rates,” said CIBC chief economist Avery Shenfeld.
“The details [of the report] were decent, with the gains coming in the private sector and a leaning to full-time, average earnings for permanent employees are now up a lean 1.9 per cent year on year according to this series,” he added.
“That’s probably a low-ball figure, but it’s part of a suite of data that certainly don’t show any evidence of wage pressures yet. On balance, this isn’t the kind of data the [Bank of Canada] will need to advance a rate hike into December, but there’s still another jobs report due before that decision date.”
U.S. job creation, meanwhile, surged by 250,000 in October.
Read more
- Canada adds 11,200 jobs, unemployment rate dips
- U.S. job growth rebounds; strong annual wage gain expected
Trade deficit narrows
Canada’s trade deficit narrowed in September to $416-million from August’s $551-million as a decline in imports eclipsed a drop in exports.
Notable in today’s Statistics Canada report is that it revised what had been an August surplus of $526-million to that deficit side of the ledger.
Imports fell 0.4 per cent, and exports inched down 0.2 per cent, the agency said.
Read more
- Canada records September trade deficit, posts huge revision to August data
- U.S. trade deficit grows for fourth straight month
Michael Babad