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Good morning. Hotter-than-expected inflation down south spurred a market selloff Tuesday, with the Dow Jones dropping 350 points after it was revealed prices rose 0.5 per cent in January from December and 6.4 per cent from a year ago. Investors may not believe anything the United States Federal Reserve says, but apparently the U.S. Labor Department is another matter. Of course, there are plenty of cues that investors take heed of, some worse than others.
For example, we should all be crying that the Kansas City Chiefs won the Super Bowl because the Dow Jones typically turns bearish when the champs are from the American Football Conference. The Super Bowl Indicator, created by the New York Times sportswriter Leonard Koppett in 1978, has been correct in 41 of 56 years, for a success rate of 73 per cent. Maybe it wasn’t the consumer price index that fuelled the selloff earlier this week after all.
But it’s just coincidence that gives the Super Bowl Indicator any kind of success, and it’s one of many pop-culture references some say are useful when gauging the health of the stock market or the economy. There’s the lipstick index, the Big Mac index and even the Sports Illustrated Swimsuit Issue Indicator (the U.S. stock market is supposed to do better when the model is American — no, really).
Getting back to the Super Bowl, some believe companies that advertise their wares during the game are the ones to back. A colleague’s dad still rues the day he didn’t invest in Gillette Co. after it ran two Super Bowl ads in 1990 to introduce its Sensor brand of razors. Within two years, Sensor had captured 15 per cent of the razor market, according to the Baltimore Sun. But that didn’t exactly translate into investor returns. Gillette shares were going for US$45.88 at the close of Sept. 29, 1989. Procter & Gamble Co. bought Gillette in 2005 in a US$57-billion, all-stock deal that valued the latter at about US$54 a share. Doesn’t seem like much, but there was a stock split in 1998 and the company paid a dividend. Not too shabby.
But maybe that’s a dated example. How about a more recent example? FTX Trading Ltd. advertised in last year’s Super Bowl. Assuming you bought $10,000 worth of shares, you now have, well, likely nothing, since the cryptocurrency exchange has gone bankrupt. You would have done better with Coinbase Global Inc., whose shares have only lost 70 per cent of their value since Feb. 11, 2022. But picking on crypto schemes is too easy. How about online auto sellers Carvana Co. and Vroom Inc.? Down 90 per cent and nearly 83 per cent, respectively.
The results are certainly mixed and entirely company dependent. There is a “significant” boost in online searches for the stocks of big companies that run ads during the game, according to the Chicago Booth Review, but the effects on investors are short lived. “When the researchers looked at the Tuesday and Friday after the game, they find that search traffic returned to normal,” the magazine says. “And while the ads increased investor attention, it’s not clear that they enticed anyone to open their wallets.”
As a result, investors and policymakers spend most of their time watching inflation, jobs and other lagging indicators, such as the Baltic Dry Index (BDI), which shows the average prices paid for the transport of dry bulk materials across more than 20 routes, thereby reflecting changes in supply and demand. Seems slightly more scientific than picking up Sports Illustrated in three months’ time.
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Andy Holloway, editor of the FPI and Financial Post Magazine, and senior features editor of the Financial Post. If you have any quips, queries or comments, get in touch at [email protected]
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4 things that should make investors worry they’re not on the right track
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A good rule of thumb is that if something doesn’t seem to make sense, it probably doesn’t, and veteran investor Tom Bradley is coming across quite a few such things. Aside from investors ignoring the time lag that monetary policy takes to filter through the economy, he’s come up with four potential red flags that might affect your portfolio if you’re not paying attention.
CLICK, CLICK … CLUNK
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Want a portfolio destined to maximize risk-adjusted returns? It’s not 60/40 or even 50/50
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Everyone wants to find the perfect portfolio model. There’s the classic 60/40 equity/bond split, or the 50/50, but David Rosenberg and Brendan Livingstone crunched some historical data to find the best risk-adjusted portfolio mix. The resulting portfolio had equity-like returns with only about half the volatility, and its assets include high dividend payers, long-dated United States Treasuries, high-yield bonds and a little surprise.
DIG FOR A LITTLE GOLD
More Rosenberg: Markets in denial as margins, profits and estimates decline
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Markets may be bouncing back, but managing risk is as important as ever
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Investors have enjoyed a pretty good start to 2023 after a terrible 2022, which was expected given that markets generally don’t decline two years in a row. But that’s not always the case, which is why portfolio manager Martin Pelletier says managing risk alongside return is still paramount. Placing your portfolio on black or red isn’t a strategy; it’s more gambling than anything else.
DON’T PLACE YOUR BETS
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The case for value stocks to keep topping growth stocks for the time being
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A funny thing happened during the market rout of 2022: value stocks finally outpaced their growth counterparts and by quite a bit. Globally, value stocks suffered a loss of just 7.5 per cent compared to a decline of 28.6 per cent by growth stocks. This substantial outperformance was pervasive across countries and regions, and Financial Post columnist Noah Solomon thinks it will likely happen again this year.
A VALUE PROPOSITION
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Investors don’t expect the stock rally to last despite recession threat receding
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Equity markets are marching higher amid optimism about stronger economic growth and cooling inflation, but most investors aren’t convinced the gains will last, according to Bank of America Corp.’s latest global fund manager survey. About 66 per cent of participants in the February survey said stocks are enjoying a bear-market rally, meaning they expect things to tail off.
WORSE THAN IT SEEMS
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FP 500 — The most authoritative survey of corporate Canada: The 2022 FP 500 is the only national ranking of the country’s public, private and Crown corporations, making it an indispensable research tool with vital data on Canada’s top companies across all sectors. Order your copy here.
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Investors shouldn’t expect much relief as the transition from QE to QT spells trouble for risk assets
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The strong jobs figures in the United States demonstrate that real-time economic releases still have the power to surprise in the short term. But the more meaningful long-term issue is the transition from a world of quantitative easing to one of quantitative tightening. As a result, Anne Walsh, chief investment officer at Guggenheim Partners Investment Management LLC, says the S&P 500 could dip as low as 3,000-3,200 during a recessionary period that might begin mid-year.
BACK TO DA BEARS
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Tired of bears? Well, you can’t get more bullish than Brian Belski, chief investment strategist at BMO Capital Markets. Even though he admits 2022 was humbling for bulls, “we actually think we have been in a giant secular bull market,” he tells the Financial Post’s Larysa Harapyn. “We believe that a renewed cyclical bull market within the much broader secular bull market started in October of 2022. We believe those were the lows for this particular cyclical bear market that we saw for the majority of 2022.” What about all the weak earnings guidance? He says we’re back to the underpromise, overdeliver model, so there’s nothing to worry about.
WATCH THE VIDEO
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Can we retire on $170,000 in savings and maintain our current lifestyle?
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Canadians think you need $1.7 million to retire, but one reader has a tenth of that in savings, and wants to retire now with his wife. It’s a good thing he has a $2.5-million house, but certified financial planner Allan Norman says that’s still not going to be enough if they want to maintain their current lifestyle, especially since they don’t have anything invested. But there is a way out because he also owns a holding company currently paying him dividends.
GET THE ANSWER
If you have an investing or personal finance question, hit us up at [email protected].
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The CRA is actively looking for people who day trade investments in their TFSAs
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The best thing about tax-free savings accounts (TFSAs) is that you can grow your investments within them to whatever level you like and withdraw the gains without paying tax on them. But not always. Tax expert Jamie Golombek details the case of a taxpayer who the Canada Revenue Agency decided was carrying on a business in his TFSA by actively trading marketable securities and, therefore, had to pay tax on the proceeds.
TRADE TRACKER
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4 steps to getting investment income without paying the CRA more taxes
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Earning steady income from your investments generally makes sense. After all, dividends made up between 25 per cent and 75 per cent of total returns depending on the decade, according to a study of the S&P 500 going back 80 years. As a result, wealth adviser Ted Rechtshaffen is a fan of dividends, but more income means more taxes unless …
HOW TO CUT YOUR TAX BILL
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You asked for it and now it’s back. We’re pleased to announce that our Family Finance column is returning to help solve your money issues. Worried about having enough for retirement? Wondering how to make ends meet? Need to adjust your portfolio? Just drop us a line at [email protected] with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a story about it (we’ll keep your name out of it, of course).
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The deadline to contribute to your registered retirement savings plan (RRSP) and get a tax break looms, and 51 per cent are planning to do so this year, a 54.5 per cent increase over last year, according to a recent Edward Jones Canada survey. Of those contributing, 23 per cent plan to use the maximum amount, which Julie Petrera, senior strategies, Client Needs, says is partly because of the Bank of Canada’s decision to increase interest rates. But only 19 per cent of respondents believe an RRSP alone meets their saving and investing needs and 12 per cent prefer other investment options altogether.
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Good news if own Suncor Energy Inc. stock: The Calgary-based oilsands giant returned nearly $8 billion to shareholders through dividends and share buybacks last year and it announced on Wednesday that it will repurchase a further 10 per cent of its public float over a 12-month period and boost its quarterly dividend by 11 per cent to 52 cents per share, the highest in the company’s history.
Bad news if you’re a Shopify Inc. shareholder: The Ottawa-based e-commerce player’s stock plummeted as much as 16.1 per cent despite reporting fourth-quarter revenue of US$1.73 billion topping the US$1.65-billion estimate. The reason: its first-quarter revenue growth forecast is in the “high teen percentages,” slightly below forecasts for 20 per cent, according to a Bloomberg survey.
Good news if you’re a Barrick Gold Corp. shareholder: A fourth-quarter US$735-million loss — after a US$726-million profit a year earlier no less — doesn’t seem like good news, but the Toronto-based miner also announced it is starting a US$1-billion share buyback program.
Bad news if you’re a B2Gold Inc. shareholder: Investors didn’t exactly cheer the Vancouver-based gold miner’s $1.1-billion all-stock deal to acquire Sabina Gold & Silver Corp., a miner that’s developing a project in Nunavut. B2Gold’s stock dropped five per cent after the deal was announced on Monday. If the deal goes through, Sabina shareholders will own about 17 per cent of B2Gold.
Good news if you’re in a pension plan: You may have a slice of $3 billion coming to you since there are 175,000 “missing” pension plan members, according to the Financial Services Regulatory Authority of Ontario. Some may not have retired but moved to other jobs and are unaware of the benefits they’ve accumulated, some may be retired but unaware they are entitled to additional retirement savings, and some may have passed away without claiming their pension benefits.
Bad news if you have a loan: One in six loan holders say they are likely to default on making payments on a major loan or mortgage in the next 60 days, according to the latest Canadian Maru household outlook index. That’s up two percentage points from the month before and the highest level since Maru began tracking Canadians’ views on their personal finances and the economy in 2020.
Good news if you’re a Teck Resources Inc. shareholder: The miner’s stock briefly rose almost 10 per cent after it was revealed that it’s investigating a spinoff of its multibillion-dollar steelmaking coal business to focus more on industrial metals such as copper.
Bad news if you’re a millennial: Nearly half the total insolvency filings in Ontario were by millennials even though they only make up about a quarter of the 18-and-over population. “The average insolvent millennial is just 33 years old, yet they are 1.7 times more likely than baby boomers and 1.4 times as likely as generation X to file (for) insolvency, relative to the population,” says Ted Michalos of insolvency firm Hoyes, Michalos & Associates Inc.
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