Making sense of the markets this week: July 26, 2021

Evidence that buying the dip isn't the brag investors might think; more dispatches from earnings season; what you need to know about stagflation; and where you can now buy a fraction of a stock share. The post Making sense of the markets this week: July 26, 2021 appeared first on MoneySense.

Making sense of the markets this week: July 26, 2021

Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.

Earnings season, part II: both sides of the border

In last week’s column, we and the projections for what is setting up to be a robust reporting period. It is likely to be the earnings growth peak in both the U.S. and Canada. 

A roundup report on Seeking Alpha offered… 

“The rally goes on…. A three-day winning streak on Wall Street—that followed a sharp selloff on Monday—is showing no signs of slowing down as futures continued to climb in overnight trading.

“‘The earnings results have continued to be strong and guidance is showing that the Delta variant isn’t impacting the recovery, so far at least,’ said Esty Dwek, head of global market strategy at Natixis Investment Managers. ‘That is giving confidence to the market that the recovery can continue’.”

Canadian stocks are also joining the rally. Here’s a snapshot of selected earnings: 

CN Rail beat projections on the , but trailed on revenue. Railways are very economically sensitive bellwether industrials, as they move the goods across the country and across North America. Freight revenues (C$3,452 million), which contributed 95.9% to the top line, increased 14% year over year as economic activities picked up.  

Canadian National still anticipates earnings per share to grow in double digits during 2021 from adjusted earnings of C$5.31 in 2020. 

Rogers Communications earnings were , while they beat on revenue, reporting C$3.58B. That’s up 13.3% year over year and beat by C$40M. Rogers management offered… 

“This quarter, we generated cash flow from operating activities of C$1,016 million, down 29%, and free cash flow of C$302 million, down 35%, as a result of increases in cash income taxes and capital expenditures.”

Air Canada continues to face incredible challenges, but reported revenues that surpassed expectations. That said, they are still largely grounded and losing money at a good clip. 

The airline reported operating revenues of $837 million, an increase of $310 million or 59% from the second quarter of 2020, and an operating loss of $1.133 billion compared to $1.555 billion in the second quarter of 2020. Net cash burn of $745 million, or about $8 million per day, on average, is down from the $15 million per day range of the first quarter. They expect that to fall to $3 to $5 million in the third quarter. 

Travel restrictions are being removed; will Canadians take to the skies? That is yet to be seen. In a recent post we reported on the potential of

But the stock has not been grounded. The stock is up over 59% over the last year. That might be rich, for a company that is burning cash and not fuel. 

We’ll keep an eye on the Canadian traveller and Air Canada. 

South of the border…

U.S.-index and portfolio staple Johnson & Johnson had a robust quarter, beating on earnings and revenue: Q2 Non-GAAP EPS of $2.48 beats by $0.19; GAAP EPS of $2.35 beats by $0.31. Revenue of $23.31B (+27.1% year over year) beats by $770M. They also increased guidance moving forward. That can also affect stock prices. JNJ is up in a healthy fashion after their earnings release. 

Source: Seeking Alpha

I’m happy to hold JNJ in our market-beating

Coca-Cola earnings and revenues bubbled in the second quarter: Q2 Non-GAAP EPS of $0.68 beats by $0.12; GAAP EPS of $0.61 beats by $0.05. Revenue of $10.1B was up an incredible 42% year over year, and beats by $800M. They also adjusted guidance more favourably, and like Pepsi that I own, the stock saw a nice pop after earnings. 

Coca-Cola earnings growth chart
Source: Seeking Alpha

Diversified telco Verizon reported very strong numbers: Q2 Non-GAAP EPS of $1.37 beats by $0.07; GAAP EPS of $1.40 beats by $0.11. Revenue of $33.8B (+11.2% year over year) beats by $1.07B. Wireless Retail postpaid net adds of 528K vs. a consensus of 360K.

Chip maker Texas Instruments beat on earnings and revenue, but the market did not like its forward guidance. That took the stock down: Q2 Non-GAAP EPS of $1.99 beats by $0.14; GAAP EPS of $2.05 beats by $0.22. Revenue of $4.58B (+41.4% year over year) beats by $220M.

Alaska Air reported its first profit since 2019: Q2 Non-GAAP EPS of -$0.30 beats by $0.15; GAAP EPS of $3.15 beats by $2.90. Revenue of $1.53B (+263.4% year over year) beats by $10M. 

And American Airlines surprised on a few metrics: Q2 Non-GAAP EPS of -$1.69 beats by $0.03; GAAP EPS of $0.03 beats by $0.92. Revenue of $7.45B (+359.9% year over year) misses by $30M. Load factor of 77% vs. consensus of 72.1%. Q3 capacity to be down approximately 15% to 20% vs. 3Q19, total revenue to be down approximately 20% vs. 3Q19. 

The earnings watch continues. Things should heat up more next week on Canadian side of the border. 

Understanding stagflation: is it the biggest threat?

Stagflation is a period where we have inflation but no economic growth. That is not a good combination. Our cost of living is increasing and many companies will move through difficult times; with the economy stagnant or shrinking, more and more workers join unemployment lines. 

Stagnation hit with force in the 1970s and into the early ’80s. It ate investors alive. 

You can head to the to play around with U.S. stock returns from the period from 1966 to 1981. Don’t forget to hit that inflation button. From my own research using Canadian stock market data supplied by BlackRock and using the on the Bank of Canada site, our markets also came up short for most of the period. Canadian stocks roared back toward the end of the stagflation era, after most of the damage was done. 

Real and lasting inflation is arguably the most-discussed investment topic (and fear) of the day. And stagflation is a greater concern. 

From Vox, here is a wonderful summary of the and how the conditions might apply to today. Can we look to the conditions that caused stagflation in the 70s and make an educated guess as to the possibility of a repeat in 2021 and beyond? 

Many of today’s investors have not known inflation or stagflation. From that post… 

“For those of us not alive then and who have never lived through a period of debilitating inflation, the fears voiced by baby boomer economists like and that massive price increases could be coming might ring hollow. But their worry, which , reflects a real history. The Great Inflation, which began in the late 1960s and finally ebbed in the early ’80s, was a genuine calamity that worsened living standards for years.

“Understanding the warning that figures like Summers and Blanchard are issuing is important. But equally important is understanding the key differences between what happened in the 1970s and what’s happening today.”

The thrust of that post and thesis is that central bankers can learn from past policies and bank responses to stagflation, and apply that during the current inflation threat. 

The post also looks at the underlying economic conditions of the 1970s and 2020s. 

Inflation can be an accumulation or piling on of various and individual price increases such as the oil price spike of the 70’s. Today, many put forth the transitory inflation argument based on the fact that there are small pockets of inflation caused by shortages (supply shocks) and supply chain issues. Issues that might soon be resolved. 

We’ve talked about those in the past. From that Vox post, and on the suggested strategy: 

“Instead, the federal government should be intervening in specific areas to keep specific types of prices that are rising rapidly from further accelerating.” 

Can central banks and politicians stickhandle their way through any inflation or stagflation threat? That remains to be seen, and there are so many different moving parts. No economic period is the same. No stock or bond market correction or rally is the same. 

The VOX article, while very good, is a guess. Perhaps even a very well-thought-out and educated guess. That said, predictions about the economy are hard to make. 

At least we’re talking about inflation and its real risks. When we protect our wealth, we don’t guess; we create a portfolio based on a truth—that we don’t know the future. We don’t know what’s in store. 

Gold and other commodities have worked to protect portfolios during stagflation (see those supply shocks), while stocks were no match for inflation in the U.S. and Canada. To my knowledge, international stock markets were also not the required hedge, though certain types of stocks such as energy and commodity-related, tech and consumer discretionary, might help the cause. You might shade in some inflation-adjusted bonds to your fixed income component. 

Invest and perhaps hedge accordingly. 

Wealthsimple trade is the first to offer trades of fractional shares

The trading app Wealthsimple Trade became the first to allow clients to buy and sell fractional shares. Investors can trade a select list of Canadian- and U.S.-listed stocks in this manner. (Wealthsimple is also by assets under management.)

Buying fraction shares allows you to buy $100 of a stock, even if the share price is $1,000. 

At a discount brokerage, an investor would have to wait until they have $1,000 of cash in their account to buy that $1,000 stock. Consider that the price of Shopify is now near $2,000. Want to grab a few hundred bucks worth of Shopify? Now it’s no problem. And remember, there are no fees when buying and selling Canadian stocks. Investors will face the when buying or selling U.S. stocks. 

Here is the very fractional list of popular companies available for fractional share buying:

  • Airbnb, Inc.
  • Amazon.com, Inc.
  • Apple Inc.
  • Canadian National Railway Co.
  • Coinbase Global Inc.
  • Google LLC
  • Microsoft Corp.
  • Netflix Inc. 
  • Nvidia Corp. 
  • Royal Bank of Canada
  • Shopify
  • Tesla Inc.
  • Toronto-Dominion Bank

Wealthsimple plans to expand . We’ll keep an eye on it. 

Buy the dip?

It was the big story of the week. Stocks fell on Monday, July 19, due to over the COVID Delta variant disrupting the grand reopening plans. 

The S&P 500 fell 1.6% to 4,258.49. Energy, financials and industrials led the way down. It was the worst day since October. 

S&P 500 chart
Source: Seeking Alpha – S&P 500 IVV ETF

And stocks had been slipping the previous week, and the week before that. 

S&P 500 chart
Source: Seeking Alpha – S&P 500 IVV ETF

From July 13, U.S. stocks fell some 4.6%. Canadian stocks also fell, by about 3.5% from the near-term peak. 

Modest declines, but the big question on Twitter and investment platforms and in the financial press was: Did you buy the dip? What? 

Mike the Dividend Guy chirped in with… 

 

Yup, you could have had that price two weeks ago. Where was the excitement for buying two weeks ago, or even a month ago when stocks were cheaper?

And yet it’s normal to hear so many brag that they “bought the dip.” Money seems to magically appear in investor accounts whenever there is a bad day or two in the markets. Or, that is, for those who post on social media. 

But if they were hoarding portfolio money waiting for a correction, they sold (or, make that bought) themselves short. 

There is no reliable way to time the markets. Hoarding cash does not work. 

If you’re in the accumulation stage, “buy ’em when you got ’em”. 

Make sure you’re investing within your risk tolerance level. Let rebalancing take care of asset prices that are moving in opposite directions over time. And rebalancing will naturally help you buy some low and then sell high.  

Dale Roberts is a proponent of low-fee investing who blogs at . Find him on

 

The post Making sense of the markets this week: July 26, 2021 appeared first on MoneySense.

Source : Money Sense More   

What's Your Reaction?

like
0
dislike
0
love
0
funny
0
angry
0
sad
0
wow
0

Next Article

How condo insurance works

Condo insurance is important for protecting yourself, your unit and your stuff. Here’s what you need to know about what it covers and how it works. The post How condo insurance works appeared first on MoneySense.

How condo insurance works

Condo insurance is a smart decision. Regardless of whether you just purchased a brand new loft or a cozy older suite, you’ll need to make sure your asset is protected. 

While condominium insurance is not required by law like car insurance, often mortgage lenders or your building will require you to have it. And while the extra payment can take up cash flow, remember that this coverage can save you money in the long run, should you suffer an expensive loss. Where it gets tricky is how the insurance works in tandem with your condo corporation’s policy. Read below for a simple explanation.

What is condo insurance?

Condo insurance is a personal policy that protects your individual unit and rounds out the coverage you automatically get from your condo corporation.  Here’s how condo insurance works: The condo corporation’s insurance will protect common spaces and amenities like gyms, pools, lobbies, hallways and elevators. Your personal policy will cover what’s in your unit, including personal property, the cost of repairs, the expenses involved in living elsewhere during those repairs, and liability should someone get injured in your unit. 

Your personal condominium insurance provides coverage in three different ways:

Protecting personal property

This includes clothing, appliances, furniture and what’s in your condo locker. Policies generally start at $20,000 worth of coverage, with the option to pay for additional coverage on high-value items, like art and jewellery. (Learn more about contents insurance here).

Providing emergency housing

It provides cash for a hotel or temporary rental if you have to move out of your unit while it’s being repaired during an insured loss. For example, if your neighbour’s unit catches on fire, and you can’t live in your unit because of smoke or repairs, your condo insurance policy would cover the cost of your alternative accommodation.

Covering medical costs

It covers medical bills if someone is injured on your property. If the injured party decides to sue you, it helps pay for legal bills too. The average coverage ranges from $500,000 to $3 million, so there’s plenty of wiggle room to find the coverage you need. 


Compare personalized quotes from some of Canada’s top home insurance providers in minutes*


Does condo insurance cover appliances?  

The short answer is yes, because appliances are considered personal property and they’re contained within your unit. (However, if you are a tenant in a condo, you don’t own the appliances—your landlord does. You require renters insurance that’s tailored to the value of your personal possessions and not your landlord’s. Read more about apartment renters insurance here.)

Does condo insurance cover damage or injury in common areas? 

Any damage in the common areas of your building, like the front entrance, party room or pool, is covered by the Homeowners Association (HOA) Insurance which your condominium corporation—and part of your maintenance fees—foots the bill for. “On top of that, [they] will likely have insurance on the building itself,” says Matthew Johnson, customer care manager at Sonnet Insurance.

And it’s not just up to your HOA to decide what kind of insurance it needs. Across the country, each province and territory has a condo act that outlines a condo corporation’s legal insurance responsibilities.

However, there is a major caveat for individuals who own units within the condo. “The condo corporation’s insurance or HOA insurance will not cover you, your personal belongings and liability unless there is damage to the shared elements in the condo, so personal condo insurance is still required,” Johnson adds.

And sometimes, your condo corporation’s policy can’t foot the entire bill when there’s damage or injury as a result of an insured peril. For instance, when someone slips on the glossy marble floors of your boutique building and the condo corporation’s liability coverage comes up short, the condo owners have to pay the difference. They each have to cover a fair share of the remaining payout—and the cost can be eye-watering. Instead of draining your savings or maxing out your credit, special assessment coverage will pay this out for you. The takeaway? Read the fine print and ensure this coverage is included in a condo home insurance policy and if not, it’s worth paying extra to avoid a financial surprise in the future.


Compare personalized quotes from some of Canada’s top home insurance providers in minutes*


Does a condo insurance policy cover water and fire damage?

When it comes to accidental water and fire damage, condo homeowners insurance coverage will take care of the costs. And take special note of the word accidental: that means sudden and unexpected, not something you could have prevented. “Typically, anything that is preventable will be specifically excluded from a policy,” explains Johnson. “Something like mould build-up causing damage to wood/walls would not be covered, as this can be prevented with regular maintenance. Similarly, leakage or seepage would not be covered if the damage occurs over a period of time, like from pipes under the sink.”

Specific to water damage, unexpected burst pipes and leaky appliances are covered in a basic policy while sewer backup or flooding costs are not. The rationale is not everyone will need protection from floodwater or wastewater. If you live on the 20th floor, there’s a low risk of this kind of water damage to your unit. However, if you live in, say, a ground-floor property with a view of a lake, there’s a higher risk. The bottom line: Ask an insurance professional to assess your water damage risk and tailor your policy to meet your needs.

How much coverage do you need? 

Essentially, how condo insurance works is as a partnership between your personal policy and your HOA’s policy. “It is important to confirm the coverage that is made mandatory by your condo corporation, as they will want to make sure both parties are protected in the event of a claim,” says Johnson.

Once you have the mandatory coverage, assess if you need to top it up to cover the true value of your personal belongings and if you need to pay extra for flood water or sewage water damage.

Next, research add-ons that you might want for extra suite relief. For example, improvements and betterment coverage covers unit improvements and renovations such as new cabinets and flooring. Generally, insurance only pays for repairs and replacements that meet the building’s original standards so if you switch out the laminate floors for a wide plank hardwood and a quartz counter for marble, there’s the option to cover the higher value of those upgrades. 

Johnson suggests options for more coverage, which may vary between companies. These can include identity theft expenses, lock replacements, and a green coverage enhancement which pays an additional $25,000 to replace the damaged property using environmentally friendly and energy-efficient materials, products, or methods of construction.

How much is condo insurance?

Expect to pay anywhere from $250 to over $1,000 year says Johnson and he lists various factors that determine the cost of your premium:

  • The overall number of claims in the building. The logic: The more claims already logged, the higher the risk of future claims.
  • Your own insurance history. If you’ve made a claim before, the insurance business assumes you will make more in the future, so your premium goes up to cover your higher risk of making a  claim again. 
  • The coverage you select. When you top up the basic coverage with added features, the price goes up.

 

 

 

 

 

The post How condo insurance works appeared first on MoneySense.

Source : Money Sense More   

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.