Ritholtz Wealth Management’s Josh “The Reformed Broker" Brown posted research from Oppenheimer & Co. highlighting promising signs of a renewed upturn for global markets.
The research report, written by Ari Wald, noted: “Currently, 59 per cent of the stocks in MSCI All-Country World (ACWI) are trading above their 200-day average. Readings between 60-80 per cent have been followed by above-average S&P returns over the next 6-12 months since 1995 … although timing the next leg higher remains challenging, we think this setup is slowly developing."
This analysis is clearly technical in nature – it infers future market action from stock price action rather than fundamentals like earnings or interest rates.
I spent a long time equating the usefulness and accuracy of technical analysis to astrology but eventually changed my tune. I now consider technicals part of the research process – usually the final piece after investigation of stock fundamentals and prospective growth rate.
In general terms, technical analysis represents the quantification of investor sentiment. Mr. Wald’s comments about the breadth of companies trading above their 200-day moving averages (above the 200 day implies a longer-term uptrend) suggests that, in aggregate, global investors are becoming more bullish and driving prices higher.
Early in my career in the finance industry, I was told repeatedly that ‘the market’s never wrong’. This turned out not to be 100 per cent true in the end, but it did provide a useful reminder that when the market is moving in the opposite direction you think it should, it’s almost certainly you that’s wrong, not the market.
Market history shows that stock prices are a reliable forward-looking indicator for the economy, and Oppenheimer is pointing out that global investors are increasingly betting on an economic recovery.
This bullishness is building despite a negative trend in U.S. corporate profit growth.
Year-over-year earnings growth has been barely positive and perhaps more importantly, analyst profit forecasts are dropping. In a Monday research report, Merrill Lynch quantitative strategist Savita Subramanian wrote that, “Despite better-than-expected 3Q earnings, 4Q estimates are now down 2% since the beginning of October … 2020 estimates have also been falling, down 1% since the beginning of October.”
Smart investors will of course stand pat with a diversified portfolio and accept whatever happens in the short term. For more tactical investors, it’s another tough decision with technicals and fundamentals pointing in opposite directions.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Atlantica Yield PLC No one likes fossil-fuel stocks right now. Even at rock-bottom prices, it’s hard to find buyers these days. The S&P/TSX Capped Energy Index, which is almost entirely composed of traditional oil and gas companies, is down about 24 per cent in the past 12 months. By contrast, the S&P Global Clean Energy Index is up about 33 per cent in the same period. That, in a nutshell, tells you what investors see happening in the future. There are many green energy and infrastructure companies from which to choose but this little-known investment, which has an attractive yield, is one Gordon Pape is recommending right now.
Real Matters Inc. Falling interest rates are fuelling a sharp rebound in shares of Real Matters Inc., helping the Canadian company shake off a harsh slump following its initial public offering. Tim Kiladze has a fresh look at the stock’s prospects.
Jamieson Wellness Inc. Next week, the company will be reporting its third-quarter earnings results. For the past three consecutive quarters, the share price has rallied between 9 per cent and 11 per cent the day after the company released its quarterly earnings. And for long-term investors, the company appears to have multiple opportunities to support its growth. Jennifer Dowty profiles the stock.
Uber Technologies Inc. and Lyft Inc. The stock market told ride-hailing companies to take a hike when they went public earlier this year. The share prices of Uber Technologies Inc. and Lyft Inc. plummeted as investors focused on the long history of massive losses in the freelance-taxi industry. But now? Ian McGugan thinks it’s time for a rethink.
How to pick the right fee-for-service financial planner
Fee-for-service financial planning is where planners charge an hourly or flat rate for their services rather getting paid through commissions and fees associated with the sale or management of investments. After long years of struggling to sell their business model to clients, fee-for-service planners are in demand. To effectively shop around for a fee-for-service, you need to know what to ask. Rob Carrick outlines the questions.
New designation expected to bring more certified financial-planning services to average Canadians
Changes to the way financial planners become certified will soon see a new cohort of these professionals emerge aimed at serving a broader population of Canadians with less complex financial needs. FP Canada, the organization that oversees the Certified Financial Planner designation, will next year introduce the Qualified Associate Financial Planner (QAFP) certification as part of changes to the CFP program. Clare O’Hara reports.
My fearless predictions for how my Yield Hog dividend growth portfolio will hold up in a recession
John Heinzl looks back at the financial crisis of 2008 and 2009 to provide clues on how his portfolio will weather any upcoming recession.
Others (for subscribers)
Monday’s Insider Report: CFO earns over a $500,000 from the sale of this stock
Ask Globe Investor
Question: What do you think of using DRIPs as an investing strategy? I was thinking of using the hybrid DRIP with Questrade. And what do you think of the DRIPs that buy you partial shares?
Answer: DRIP is short for dividend reinvestment plan. Many companies offer them to allow people to reinvest their dividends in new shares. No commissions are charged and, in some cases, companies offer a small discount from the market price.
DRIPs are an excellent option if you don’t need the cash flow from dividends and if you want to build your position in a company over time.
I’m not a big fan of buying partial shares as it complicates the calculation of adjusted cost base.
I asked Questrade for an explanation of their hybrid DRIP. They replied that these are fairly common among discount brokers and are also known as synthetic DRIPs.
“Essentially the customer is registering their intent to reinvest cash dividends with the brokerage vs. a share purchase plan directly with the underlying issuer as with a traditional DRIP,” Questrade said.
“The hybrid approach is much easier and quicker for the customer to set up, and ‘traditional DRIPs’ are becoming somewhat less common as, for amongst other reasons, the issuer is required to increase the number of shares in circulation each quarter which can have a negative impact on price.
“There are some differences between a hybrid and traditional DRIPs – for example with the hybrid approach only whole shares are purchased, whereas with a traditional DRIP fractional shares can be purchased. We’ve supported the hybrid DRIP for a long time, and we don’t hear from customers asking for us to support a ‘traditional DRIP’.”
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What’s up in the days ahead
How should Canadians invest a cash windfall? Norman Rothery shares insight on whether it should be done as a lump sum, or through dollar-cost averaging.
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Compiled by Globe Investor Staff