A TV screen showing U.S. President-elect Donald Trump is pictured in front of the DAX board at the stock exchange in Frankfurt, Germany.© Kai Pfaffenbach / Reuters
F. Scott Fitzgerald famously wrote that "The test of a first rate intelligence is the ability to hold two opposed ideas in the mind at the same time." But the current environment of extreme speculative bullishness in markets, countered by what can only be described as politics-based panic, seems an impossible test for even the investment world's wisest thinkers.
Futures markets show clear speculative excess in the form of net bullish positions in oil and copper – the largest since the financial crisis in both cases – and net bearish futures positioning in 10-year U.S. Treasury bonds, which are also setting post-crisis records.
There is a growing sense among analysts that optimism reflected in these commodity-based reflation trades is now overdone. A Wednesday Goldman Sachs research report noted that "Energy equities have now seen the strongest 12-month performance versus the market of any oil price recovery in at least 30 years, leaving limited scope for further capital appreciation." For metals sectors, prominent Credit Suisse strategist Andrew Garthwaite wrote "All our [macroeconomic models] suggest industrial commodity prices should fall by 10 to 15 per cent."
Unlike the slide in the new U.S. president's approval rating, however, global economic data suggests that any pullback in cyclical market sectors is likely to be short-lived. The JP Morgan survey of global manufacturing activity was released Wednesday, showing the strongest growth in three years. South of the border, the U.S. Institute for Supply Management index rose to 56 – a reading above 50 indicates rising activity levels – the best result in two years.
Market action in recent days looks very much like a pause in positive growth trends that are buried under negative political headlines. A weakening of global economic data would, of course, merit an appropriate, more risk-averse response. But until that happens, investors should try and keep both trends – a strong market backdrop and offensive political news flow – coexisting in their heads separately at the same time.
-- Scott Barlow
Stocks to ponder
Integra Gold Corp. This stock is just pennies away from appearing on the positive breakouts list, writes Jennifer Dowty. The junior gold exploration company has operations in a prolific gold producing region in Canada, an unanimous 'buy' recommendation from 14 analysts, and 58 per cent upside projected. It is a stock with several catalysts on the horizon. Plus, it is a potential acquisition target.
Cardinal Energy Ltd. This is a junior oil-weighted company with operations located in Alberta offers investors an attractive dividend yield of 4.8 per cent, has 12 'buy' recommendations, and a forecast price return ranging from 21 per cent to 61 per cent, writes Jennifer Dowty. It's a stock that's just shy of appearing on the negative breakouts list.
Imperial Oil Ltd. Though he normally steers clear of energy stocks in his weekly TSX RSI column, Scott Barlow noticed something potentially useful with Imperial. It appears very sensitive to its 200-day moving average. The price is exactly at the 200-day at this point, so investors should take note.
Special Report: RRSPs
It's RRSP season and Globe Investor wanted to give investors somewhere to turn to find out what's the best moves for them this year. So if you have RRSP questions and looking for specific investing ideas, check out our special section: How to make the most of your RRSP this year
The Rundown
Canadian dollar caught in 'Trump trade' dilemma
The recent strength in the Canadian dollar is widely attributed to stronger than expected domestic economic data, writes Scott Barlow, but three charts suggest there's a lot more than that going on. In effect, the loonie is caught up in the same "Trump trade" dilemma as the rest of the world's major markets.
National Bank reveals its top 27 dividend picks for 2017
National Bank Financial released it recommended list of 27 dividend investment ideas for 2017 and Jennifer Dowty takes a look at the list.
These dividend stocks have modest yields, but big growth potential
Some dividend investors salivate over stocks with outsized yields. Not Renato Anzovino, writes John Heinzl. The lead manager of the Heward Canadian Dividend Growth Fund is more than happy to accept a modest initial yield if the company's earnings and dividends are growing steadily. Focusing on stocks with rising dividends is a strategy that works in all sorts of market conditions, Mr. Anzovino says. "Investing in these types of growing, high-quality Canadian equities that have a history of paying consistently increasing dividends will continue to provide excellent risk-adjusted returns for investors," he says. Here are five of his favourite stocks right now.
These three stocks fit Peter Lynch's investment philosophy
Peter Lynch's remarkable run as manager of Fidelity's Magellan fund throughout the 1980s made him a household name, and he was often called on to talk to investment groups and the public about his secret to picking stocks, writes John Reese. In his 1993 book Beating the Street, he wrote down a list of maxims, which can be summarized along three broad themes: Do your homework, invest for the long term and only buy what you understand. Here are three top stock picks tracked by Validea.com's portfolio that is modelled on Mr. Lynch's investment philosophy.
Another reason to own TSX banks: Stock splits could be nearing
If recent history is any guide, some of Canada's biggest banks could announce stock splits this year – providing a compelling reason to load up on these profit- and dividend-gushers, writes David Berman. Canadian Imperial Bank of Commerce and Bank of Montreal look like naturals, and one could build a pretty good case for Royal Bank of Canada, too. All three stocks trade near, or above, $100 each, which has been a typical threshold for previous stock splits over the past two decades.
Gordon Pape: There's a catch to this high-yielding fund
How would you like to invest in a portfolio of Canadian blue-chip stocks that offers a yield of 11.1 per cent? You can call your broker and buy this security right now. But before you do, read on, writes Gordon Pape. The fund in question is Dividend 15 Split Corp. but you need to read this before you think about buying.
Q&A: CEO of one of Canada's top marijuana stocks answers your questions
Investors in marijuana stocks enjoyed phenomenal returns last year. While the parabolic rallies for many of these stocks have paused in recent months, further longer-term gains may be far from over. This may be the calm before another explosive move higher for these stocks, writes Jennifer Dowty. Last year, speculative traders in this space helped drive stock prices higher. Absent news from the government, many of these traders may have moved into other areas with price momentum, such as the so-called "Trump"-driven stocks. However, this spring, the federal government is expected to table legislation to legalize recreational marijuana. Jennifer Dowty sat down to talk with Vic Neufeld, the chief executive officer of Aphria Inc. Here's her interview with him, which includes questions sent to Jennifer from our readers.
How this fund manager of the year beat his peers
For fund managers who specialize in beating a slumping market, the Canadian small-cap space has provided the ideal backdrop in recent years, writes Tim Shufelt. Over a five-year stretch starting in early 2011, smaller Canadian stocks were mostly lost in the wilderness, at least on an index basis. Finally, 2016 delivered a year of decent returns. As commodities staged a rebound, Canadian small caps outperformed large caps for the first calendar year in six, and by a wide margin. In both good times and bad for small caps, the Beutel Goodman Small Cap fund managed to beat its peers. The managers of the fund, Stephen Arpin and William Otton, have been named Morningstar Canada's Canadian equity fund managers of the year. Mr. Arpin talks to The Globe about how to play defence without missing out on too much of the upside.
Fund follies
There are two ways that mutual fund investors get burned, according to Andrew Hallam. First they get scorched by fees, then behavioural silliness compounds the problem: They chase funds with strong tack records.
Worst but first
Over the past week, there is one sector that has seen active insider buying action, and the sector may surprise you. It is the worst performing sector in the S&P/TSX composite index – the energy sector, reports Jennifer Dowty, who looks at eight stocks with recent insider buying and selling activity.
Dear adviser ...
You are the CEO of your own portfolio. It's time to start asking more and harder questions of your investment professionals. Tom Bradley has composed a letter to help if you are ready yo get serious.
Number Crunchers
Twenty U.S. companies that may benefit from easing regulatory burdens
Seventeen Canadian stocks for value-oriented investors
Seven U.S. health-services stocks with strong profitability and reasonable valuations
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What's up in the days ahead
No one can agree on what Hudson's Bay Co.'s extensive collection of department stores is worth, and that sets up an intriguing opportunity for investors who thrive on uncertainty. David Berman will look at the investment case for the retailer, amid reports that it could be looking at snapping at American giant Macy's. Meanwhile, our Ian McGugan examines whether Trumpophobia really amounts to an investment strategy.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston and David Leeder