For investors counting on economic growth to bolster earnings and stock prices, the latest moves in credit markets are sending a clear and troubling signal: forget it. Tuesday saw bond yields across the globe plummeting to record lows, including the Canadian and U.S. 10-year benchmarks. Global investors are gravitating to bonds in this part of the world, bidding up prices and sending yields tumbling. It's no wonder, given that almost $10-trillion (U.S.) of developed market sovereign bonds now have negative yields.
A lot of factors can be blamed on this bond market disarray, ranging from worries about the impact of the Brexit vote and the potential for more central bank stimulus, to the increasing likelihood that the Fed won't be hiking interest rates anytime soon. The overriding message though is that world economic growth is in a moribund state and, in such an environment, professional money managers are taking a safety-first attitude.
Investors here should think twice about boosting returns on the expectation that higher rates are just around the corner. That may mean shunning insurance stocks, for instance, which derive investment income from fixed income holdings, or gaining more exposure to utilities, consumer staples and REITs. Those sectors can do well when rates stay low.
At the minimum, keep expectations modest for portfolio investment returns for the foreseeable future.
Three big numbers to note
0.997% Tuesday's Canada benchmark 10-year government bond yield, a new record low.
5% The amount oil prices fell Tuesday as investors worried that Britain's exit from the European Union would slow the global economy, making it unlikely energy demand will grow enough to absorb the supply glut facing the market.
8% Combined two-day decline in the FTSE 350 Real Estate Investment Trust Index after Brexit fears caused investors to shun property investments, resulting in a number of property funds freezing redemptions.
Agnico Eagle Mines Ltd. It's been a great year for gold investors with the price gaining over 26 per cent since last December. This is one gold stock that has more upside potential, writes Gordon Pape, and its shares surged after the precious metal gained following Britain's Brexit vote. Agnico's shares have been on a steady upward trend since last summer, despite earlier volatility, as gold prices rebounded. Its properties are in investment-friendly countries with little political risk and it has relatively low production costs.
TSO3 Inc. This health-care stock rose more than 30 per cent on Monday, and analysts believe there is plenty of upside left, says Jennifer Dowty. TSO3 develops low temperature sterilization systems designed to eliminate microbial contaminants from medical devices and it announced July 4 that its STREIZONE VP4 has U.S. Food and Drug Administration for expanded indications for use.
Bank of Nova Scotia and Toronto-Dominion Bank. These two banks are the top picks of Sohrab Movahedi, an analyst at BMO Nesbitt Burns, writes Tim Shufelt. By looking at which bank performed worst in the last year, as well as their strategy, platforms and their track record in capital management, these are the analysts top bank picks for the rest of this year.
Chorus Aviation. The holding company that owns Jazz Aviation LP, the largest regional airline in Canada, is a small-cap dividend stock that investors may want to put on their radar screens, writes Jennifer Dowty. The company sees great potential in the higher margin regional aircraft leasing market and in the next few months management expects to announce its leasing business strategy. The company has solid cash flow and that is supporting its monthly dividend of four cents per share.
Stingray Digital Group Inc. Shares of the Montreal-based provider of music channels for pay TV operators, airports and retailers, have swung between $6 and more than $8.50 since it went public in June, 2015, at $6.25. Despite some ongoing challenges, including a lawsuit from an American rival, analysts have rave reviews for the stock, writes Brenda Bouw. Analysts say the company is well positioned to broaden its customer base and has posted strong earnings.
The latest survey is out from Reuters on where currency strategists - 50 in all - see the Canadian dollar heading over the next year. Expect some weakening in the short term.
Stocks that are expected to be sector leaders
What are the stocks that experts feel will deliver solid returns over the next year? Jennifer Dowty takes a look at which stocks are on the favoured list of analysts. This two-part feature looks at three stocks from each sector within the S&P/TSX composite index that are anticipated to deliver solid returns over the next year, and then looks at three stocks from each sector within the S&P/TSX SmallCap Index.
U.S. recession warning
The flatness of the U.S. yield curve is worrying economists, and for good reason. The difference between short-term and longer-term yields – a measure that factors in market consensus regarding future growth and inflation – is reaching levels last seen in 2007 just before the financial crisis, write Scott Barlow. In addition, the yield curve is only 120 basis points away from negative territory, an occurrence that has preceded recessions throughout history.
Murky picture with commodities rally
Commodities are booming and that's surprising observers and raising questions about how long this can last. Over the first six months of the year, the Bloomberg Commodity Index surged 14 per cent, well ahead of global stocks and bonds. Prices for several commodities are now outrunning the expectations of even bullish analysts. However, some producers say they see oversupply in many commodities and expect that to be a long-term drag on prices, writes Ian McGugan.
Nine stocks for those on the sidelines
Fearing further rejection after the Great Recession and the financial crisis, many investors have stayed away from stocks, to their financial detriment, writes John Reese of Validea.com, as the S&P 500 has tripled since March, 2009. He lists nine stocks that are currently trading at very attractive valuations.
Strategy Lab update
The latest portfolios have been published from our four intrepid Strategy Lab players. Check them out here.
What's up in the days ahead
It was a dismal second quarter for initial public offerings in Canada, with next to no deals getting done. But with the pretty spectacular rebound in the mining sector, could things turn around in the second half of this year? David Milstead will take a close look. Speaking of new offerings, the Report on Business will publish quarterly rankings of Canada's investment banks on Thursday, offering a glimpse into how the lack of deals has hit Bay Street in the first half of the year.
And, watch for a new video featuring our equities analyst Jennifer Dowty that explains why management outlooks are key in making your investment picks.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston