Jon Vialoux, research analyst at TimingTheMarket.ca and EquityClock.com
FOCUS: Technical analysis and seasonal investing
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MARKET OUTLOOK

Stocks are progressing through their period of seasonal volatility rather unscathed, overcoming the erratic trading activity recorded in August relating to the heightened tensions with North Korea and moving to new all-time highs in recent days. The ongoing rotation within equity markets from cyclical to defensive and, more recently, to the previously unloved areas of the market, such as energy, have given investors a number of opportunities throughout the third quarter, in both Canada and the U.S. A number of these moves have played out well from a seasonal rotation perspective, such as the energy rally that began in the middle of August, while others have not, particularly if you’ve been betting on a downside move in what are typically the weakest sectors during the summer months, such as materials and industrials. The moves speak to the broader fundamental backdrop in the economy, which has seen very strong manufacturing activity at a time when factory activity typically slows amidst shutdowns and diminished demand. 

On the flip side, however, remains sluggish activity with respect to the consumer as retail spending lags historical norms. Restaurant spending, arguably the most discretionary budget item of most consumers, is showing the weakest year-to-date change on record, while another large budget item, vehicle sales, is also showing the weakest trend on record, down 12 per cent year-to-date. The weakness amongst the consumer, the largest contributor to GDP, has yet to impact stocks, but it may play a more prominent role into the fourth quarter when consumer spending is a dominant theme going into the end of year holiday season.

Looking forward to next year, a confluence of tendencies may present a benefit to one particular asset class. During mid-term election years, while equity markets may show mixed performance, upbeat economic activity has historically given lift to commodity prices, influencing things like gold, copper, and oil to higher than average performance. This tendency is consistent during years in which tax reform has been enacted, which also acts as a catalyst to economic activity, increasing demand for inputs to the manufacturing process. With investor hopes firmly pinned on tax reform in the coming year, equity markets may become vulnerable to a sell on news events, and commodities may attract attention given the benefits to the economy that a reduction in taxes project.

TOP PICKS

RIO TINTO (RIO.N)

AGRIUM (AGU.TO)

BMO EQUAL WEIGHT U.S. BANKS HEDGED TO CAD INDEX ETF (ZUB.TO)
 

PAST PICKS: AUGUST 18, 2017

FEDEX CORPORATION (FDX.N)

• Then: $206.00
• Now: $225.58
• Return: 9.50%
• Total return: 9.76%

VANECK VECTORS GOLD MINERS ETF (GDX.US)

• Then: $22.93
• Now: $22.96
• Return: 0.13%
• Total return: 0.13%

PURPOSE HIGH INTEREST SAVINGS ETF (PSA.TO)

• Then: $50.02
• Now: $50.01
• Return: -0.02%
• Total return: 0.07%

TOTAL RETURN AVERAGE: 3.32%
 

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