John Hood, president and portfolio manager at J.C. Hood Investment Counsel
Focus: Options and ETFs

MARKET OUTLOOK

I had expected and hoped for a third-quarter repeat of last year: a faltering of tech stocks or a different sector, followed by tax-loss selling which spread across the board. Markets declined 18 per cent from the October highs in 2018, opening the door to excellent buying opportunities during the last days of the year for tax-loss selling, and we added to our U.S. portfolio. It didn’t happen this year. Though not so far, we’re unlikely to reach the crescendo of 2018. Instead, other than the last couple of days, markets have been advancing despite year-long worries over a recession, the inverted yield curve and trade wars. The S&P 500 has escaped the 2,850 to 2,950 range and recently hit 3,154 basis points. 

So why is the market rising? Of the 500 stocks on the S&P, 75 per cent exceeded analysts’ expectations despite indications of slowing growth. Many sectors are doing very well. Housing is robust and consumer spending, thanks to the ease of shopping through Amazon, is setting records (just look at Black Friday and Cyber Monday). Unemployment remains at 50-year lows and wage demands are rising. 

Some market pundits claim that the rising market is due to panic buying, fear of missing out or the Fed cutting rates. I am more inclined to believe Brian Ashbury at First Asset, who says that markets are rising due to increased productivity created by technology (cloud computing, online services, data harvesting). Sam Stovall, whom we highly regard, called for the S&P to rise 7 per cent between November and April.

It should be noted that the sell-off this week was probably precipitated by weaker ISM manufacturing data and this could lead to the tax-loss selling opportunity. Nevertheless, economists polled by Reuters forecast growth at a modest 1.9 per cent.

TOP PICKS

ISHARES MSCI UK ETF (EWU:UN)

The choice is based upon the election of Boris Johnson and a successful Brexit. 

ISHARES TSX CAPPED COMPOSITE INDEX ETF (XIC:CT)

TSX Composite’s 233 holdings will parallel growth in the U.S.

VANGUARD LARGE-CAP ETF (VV:UN)

Core holdings are slightly broader than S&P 500. All are mega-cap stocks.

PAST PICKS: DEC. 4, 2018

 INVESCO QQQ TRUST (QQQ:UW)

• Then: $ 165.72
• Now: $ 202.83
• Return:22 %
• Total return:23 %

VANGUARD U.S. DIVIDEND APPRECIATION ETF (VGG:CT)

• Then: $ 47.70
• Now: $ 54.67
• Return: 15%
• Total return: 16%

 ISHARES FLOATING RATE INDEX ETF (XFR:CT)

• Then: $ 20.14
• Now: $ 20.13
• Return: -0.05%
• Total return: 2%

Total return average: 14%

WEBSITE: jchood.com