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Hello, and welcome to a new season of Trade Off!
Trading for The Globe and Mail’s free stock-picking contest, Trade Off, has officially begun. As of Aug. 10, thousands of players are building their portfolios, and the next 12 weeks will decide who comes out on top. Whether this is your first season or your third, good luck!
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The week in markets
Remember the momentum scare a few weeks back, when chip stocks got hit hard and the Nasdaq-100 slid into a technical correction? Well, in the past week, we’ve been back to talking about record highs for the S&P 500 and the Dow (not to mention the mighty TSX).
Earnings have played a role in the turnaround. Nearly 90 per cent of U.S. companies reporting this earnings season have beaten estimates, which tends to support stock prices. We’ve seen some standout Canadian stories, such as Shopify last week. Meanwhile, hedge funds that had been dumping tech a month ago have returned as busy buyers. Plus, there’s a broader AI story developing too, with strategists pointing to real profit gains at companies that are simply using AI well, as opposed to the tech companies powering the AI boom.
As for what the rest of August brings, the S&P 500 finished negative in both June and July, and according to researchers at Carson Group, that combination has historically led to weaker markets the rest of the year. So, I’d come back to focusing on earnings. If profits stay strong, that could act as a floor for stocks. But given the volatility we’ve seen, who knows what the next few weeks will bring.
First trends, then stocks
One useful way to choose stocks in this kind of market comes from Matt Orton, chief market strategist with Raymond James Investment Management, who joined us on the latest episode of Ticker Take. Rather than picking stocks one at a time, he starts with the big forces reshaping the economy. From there, he looks for companies best positioned to ride them.
In our conversation, he talked about AI, an aging population and what he calls fiscal dynamics. That represents the growing role of government in markets.
Watch out for older companies benefiting from the AI boom: Caterpillar is a great example. At more than 100 years old, Caterpillar is reinventing itself because it makes some of the key equipment that AI data centres need – namely, generators and turbines. The stock had a huge run, outpacing all other Dow members in the past year. Traditional valuation metrics would suggest the company is still looking pricey, but in this momentum-driven market, keep an eye on names like this.
Trade secret tips
Here are a few Globe reads for the season ahead.
A recent Globe column by Tom Bradley runs through some of the most common phrases in investing that sound reassuring but don’t hold up. Take “underweight,” for example, which sounds cautious but often means a portfolio manager still owns a stock, only less of it than the index does. Since you’ll be knee-deep in investor lingo during the competition, be sure to check this piece out.
CIBC’s chief market technician Sid Mokhtari recently published his top 10 stock picks for August. He’s flagging several warning signs at once, crowded positioning in semiconductor and AI trades, sharp sentiment swings and historically weak seasonality from August through October.
Here’s one for those counting on an inheritance from mom and dad. Rob Carrick walks through how the risk of wealth transfers being cancelled could be high. For many Canadians, the last phase of life is naively imagined as a low-spending period, but the reality is that health expenses can balloon – causing a drawdown of savings.
And if Trade Off has you thinking more seriously about your real portfolio, The Globe has a tool to help you find a financial adviser if you’re looking for a second opinion.
Glad to have you back in the game!
Good luck out there,
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.