Ritholtz Wealth Management’s Josh Brown is great at headlines like ‘Is The Yield Curve Coming to Kill You?’ that are both provocative and manage to needle market doomsayers. The video that appears under the attention-grabbing title features a discussion between Mr. Brown and Ritholtz’s strategist Michael Batnick on the importance of the yield curve for investors.
The investment ramifications of a yield curve inversion – the 10-year U.S. Treasury yield dropping below the two-year yield – should be taken seriously by investors. Mr. Batnick notes that going back to 1957, “the last nine times the yield curve inverted, a recession followed” after an average of 14 months. Inversions have also predicted equity market peaks consistently, with bear markets starting eight months afterwards, on average.
The video also covers reasons to believe the yield curve is now less reliable as an indicator of imminent economic disaster. Previously, the average yield on the 10-year Treasury as the curve inverted was just over six per cent. The current 10-year yield is about 2.85 per cent, thanks in large part to a decade of central bank monetary stimulus. The low nominal level makes inversion more likely than in the past, and possibly means it would be less relevant this time.
Mr. Brown also warns investors that financial media will stoke market panic if the yield curve inverts, and he’s almost certainly correct.
The video is useful for investors in both content and tone, in my opinion. For readers looking for a more in-depth look at the yield curve , Reuters published “Explainer: What is an inverted yield curve?” on Dec. 6.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Emera Inc. (EMA-T). Buying good companies when they are out of favour can be a profitable investing strategy. Case in point: Emera Inc. When John Heinzl wrote a column in mid-October titled The Compelling Case for Buying Utilities While They’re Down, Emera’s shares were trading at about $39 – roughly a dollar above their 52-week low. Since then, shares of the North American utility operator have gained nearly 16 per cent. He explains why there’s been such a big recovery in this stock.
The Rundown
David Rosenberg: Ignore the yield curve ... at your peril
It is fascinating to have seen the stock market’s reaction to the more dovish tone from the Fed of late – an initial relief trade until the realization set in as to why the central bank is backing away from its prior aggressive posture. The futures market has gone from pricing in 26-per-cent odds that the Fed would hike three more times in 2019 a month ago to just 7 per cent currently. The odds of two rate increases next year – not including Dec. 19 of this year, which the Fed has boxed itself into – have similarly dwindled to 41 per cent from 70 per cent. Some keep saying that we should ignore the curve inversion because it merely reflects a fund-flow shift from bond investors abroad out of the low-yield regions to the high-yield U.S. Treasury market. What a crock of you-know-what. David Rosenberg explains his view (for subscribers).
Why investors are suddenly so fearful again about bond yields
North American stocks plunged on Tuesday as skepticism grew about a U.S.-China trade accord, and a closely watched recession indicator broke into ominous territory. The U.S. yield curve, which measures the difference between shorter- and longer-term government bond yields, narrowed to its tightest point since before the financial crisis. The curve is important because short-term interest rates are nearly always lower than long-term rates. On the rare occasions when that pattern has inverted over the past 60 years in the United States, and it has cost governments more to borrow money for shorter periods than for longer ones, a recession has nearly always followed within a year or two. Ian McGugan reports.
Seeking shelter from the market turmoil? Here are some ideas for Canadian investors
It’s not difficult to find an investment strategist counselling a defensive approach that can provide protection against the kind of convulsions seen in financial markets lately. On Tuesday, equity markets once again lost their composure as any positive sentiment resulting from an easing of global trade tensions vanished, reinstigating a global sell-off that started in early October. The vacillation between fear and confidence with little warning is itself a sign that the bull market is in its later stages, said Ian de Verteuil, head of portfolio strategy for CIBC World Markets. Tim Shufelt reports.
25 high-growth stocks that can withstand volatile markets
Finding secular growth stories – those stocks representing above-average revenue and profit growth and with high probabilities of continuing market-beating growth in the future – is the holy grail of equity markets. Companies capable of sustaining strong growth paths without the help of falling interest rates or strong global economic growth are particularly attractive in the current period of market volatility. Thankfully, the research team at Morgan Stanley recently released its 25 top picks of secular growth stocks for the next two years. The research team defines secular growth companies as those it believes “can deliver strong growth, driven by forces such as sustainable competitive advantages, product cycles, market share gains, or pricing power.” Scott Barlow takes a look at the stocks on this list (for subscribers).
For bargain hunters, these two small Canadian banks offer big potential
Some of Canada’s smaller banks are having a terrible year, but there is a bullish case for these stocks that rests on cheap valuations, attractive dividends and a history of recovering from sell-offs. Brace yourself though: Laurentian Bank of Canada is down 28 per cent in 2018 and Canadian Western Bank is down 30 per cent, opening a horrendous performance chasm with the Big Six – which are also struggling this year – that is now 22 percentage points wide, on average. The banks’ fiscal fourth-quarter results this week may provide some hints about whether these two banks can close the performance gap. David Berman reports.
Canadian oil prices primed to see ‘further improvement’
Canada’s heavy-oil benchmark surged after Alberta announced its crude production cuts – and prices should see “further improvement” in the coming years, according to a research note. Western Canadian Select catapulted to US$32.91 a barrel on Monday morning, up around US$11 from Friday’s close, as the market immediately priced in the impact of Alberta Premier Rachel Notley’s plan to draw down the province’s crude backlog via production cuts. WCS now stands at around US$29 a barrel, and sells at a US$23.85 discount to the U.S. benchmark, a sharp improvement from a record US$50 differential earlier this fall. The heady days of US$100 oil aren’t expected any time soon, but Canada’s heavy crude should continue to perk up in 2019 and 2020, according to a report from CIBC Capital Markets. Matt Lundy reports.
Escape from mutual fund-land: The quick and dirty guide
When a cost-conscious investor wants to bail on mutual funds, the usual solution is to try exchange-traded funds. Here, we arrive at a major logistical issue for the DIY investor who wants to swap mutual funds for ETFs. How, exactly, do you make the switch? But it’s a serious issue – many find that the jump from mutual funds to ETFs is huge. Here’s a quick and dirty plan for moving into ETFs from mutual funds. This isn’t the cheapest, smartest or best approach, but it’ll do fine for someone who needs a roadmap. Rob Carrick explains (for subscribers).
Aphria appoints special committee to review transaction in short-seller report
Aphria Inc., battling a short-seller’s report that has crushed its stock, said early Thursday its board has appointed a special committee of independent directors to review one of the transactions at the heart of the claims. The committee will look at the $300-million acquisition of LATAM Holdings Inc., a company that owns cannabis assets in Jamaica, Colombia and Argentina. A report published Monday by U.S.-based short-sellers Gabriel Grego and Nate Anderson alleged that Aphria paid millions to buy assets with valuations that are “vastly inflated or outright fabrications.” David Milstead reports (for subscribers).
Others (for subscribers)
‘9 reasons people are giving for the stock market selloff'
Thursday’s analyst upgrades and downgrades
Thursday’s Insider Report: Three executives buy shares of this stock on the dip
Ten profitable Canadian tech stocks in a rising sector
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: A large-cap dividend stock that three management executives are trading
Yield Hog: John Heinzl’s model dividend growth portfolio as of Nov. 30, 2018
U.S. yield curve reflects fundamental investor mindset shift
Oil’s sharp price drop fuels questions for U.S. stock market
Coinsquare exchange acquires BlockEQ cryptocurrency wallet for $12-million
Others (for everyone)
Canada’s tech scene is thriving. How to find a diamond in the rough
Lyft files for IPO, beating out rival Uber
The bond market is now sending a clear signal: Go with a variable-rate mortgage
CPP improvements start in 2019: How much more you’ll pay, and how much more you’ll get
Six bargain energy stocks, if you can stomach the ride
Palladium outshines gold for first time in 16 years
Ask Globe Investor
Question: When is the last day I can sell a stock in 2018 and claim the capital loss for the current year?
Answer: When you sell (or buy) a stock, there are two important dates you need to know. The first is the trade date, which is when the order is executed. The second is the settlement date, which is when the money and the shares actually change hands. For the purposes of claiming a capital loss, it’s the settlement date that matters.
For years, settlement took place three business days after the trade date. As of September, 2017, however, the settlement period for stocks was shortened to two business days. Because Dec. 29 and Dec. 30 fall on a weekend this year, if you want to your trade to settle by Dec. 31 you will need to sell the stock no later than Dec. 27.
If you wait until Dec. 28 or later, your trade will settle in 2019 and you won’t be allowed to claim the capital loss this year. You’ll still be able to use the loss eventually, however.
When you have a capital loss, you must first apply it against capital gains recorded in the same year. If you still have net losses left over, you can carry them back up to three years or forward indefinitely to offset capital gains in those years. Only losses incurred in non-registered accounts qualify, so if a stock has dropped inside your registered retirement savings plan (RRSP) or tax-free savings account (TFSA), for example, you can’t use it for a tax loss.
For more on tax-loss selling, read my column here.
--John Heinzl
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What’s up in the days ahead
To mark the 2019 TFSA limit rising to $6,000, Rob Carrick looks at five smart and not-so-smart things Canadians are doing with their TFSAs .
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Compiled by Gillian Livingston
Scott Barlow