David Rosenberg recently suggested investments in sectors such as financial and consumer discretionary could be better for portfolios than consumer staples and health care.The Globe and Mail
There's a bright side to the drubbing in the equity markets over the past week: stocks look more attractive to buy the cheaper they become.
That's a point being stressed by Gluskin Sheff chief economist David Rosenberg this morning as he surveys the investment landscape a day after U.S. stocks suffered their worst setback in nearly two months and as the TSX searches for a lifeboat after sinking 5 per cent this month.
"As a more bearish mindset takes hold, it pays to keep in mind that this selloff will bring with it a tremendous buying opportunity at more attractive price levels," Mr. Rosenberg said in his Breakfast With Dave newsletter today. "All of a sudden, there are already some inexpensive stocks out there. It will undoubtedly require discipline and patience, but scaling back in to high-quality stocks at better price points is the prudent strategy for long-term investors - what is important for success is 'time in' the market, not 'timing' the market."
The latest sell-off has been particularly painful for Canadian investors. The S&P/TSX composite index has fallen five days in a row, its worst losing streak in over a year (it is trading modestly higher as of midday Friday.) Both the financials and basic materials sectors, which make up the majority of the index, have been knocked down hard.
"This too shall pass and with it the opening-up of a very decent buying opportunity," commented Mr. Rosenberg of those sectors' declines. He noted that one positive already today is that copper seems to have found a much-need bottom, as it is rebounding from its 14-week low.
Global losses in equity markets so far this month have not been inconsequential - they've amounted to $1.4-trillion, he points out.
He offered some suggestions on clues that may point to an end to the recent sell-off.
"Support levels (like the 50-day moving average) have been broken so this latest bout of weakness will be tough to shrug off over the near term. The next key level to watch for is 1,955 on the S&P 500 (which is the 100-day moving average and has consistently provided support during recent mini-correction phases.)
Also keep an eye on the VIX (the so-called volatility index), which has spiked to 15.6 from 11.6 just one month ago - recent corrections have seen it top out at the 17 level and there is a firm technical ceiling at 21. Also pay heed to the high-yield corporate bond market for signs of a turn - not evident quite yet in a space that has seen some turbulence in recent weeks."
For those still scratching their heads for why the market has been pulling back over the past five trading sessions, Mr. Rosenberg offered a concise summary:
- Shifting Fed expectations;
- Heightened Chinese growth and credit concerns;
- A return to stagnation or even recession in the euro area, this time led by Germany;
- Growing deflationary signs in such markets as commodities, gold, and bonds;
- Geopolitical tensions and terrorism fears
- Valuations: 19x price-to-earnings on trailing reported earnings for the S&P 500 versus the norm of 15.5x.
Darcy Keith