As we continue to move through tumultuous times in the global capital markets, I have included below a great article from a recent edition of the Financial Post along with a summary of key points
It’s Not 2008, Really
- Current strength in corporate earnings have been overlooked by a stock market focused on political drama in the US and Europe
- Its reasonable to believe that strong earnings will eventually put a floor under the markets
- Corporations have shown they can bolster earnings despite macroeconomic threats
- Almost half of S&P 500 companies have beat expectations and earnings are on pace for a 15% increase over last year
- US corporations have successfully tapped into international demand with 45% of S&P earnings coming from outside of North America
- Once markets get through existing sentiment factors, attention should return to excellent valuations (cheap prices) and strong earnings
- US companies have been able to strengthen profits by cutting costs and by repatriating profits with a weak US dollar
- Currently, the S&P 500 trades at a 12x P/E while the long-term average is 15-16x P/E which is presenting opportunities for significant appreciation
Current volatility is very difficult for investors but a calm analysis of the fundamentals should not be overlooked. In addition, the currrent ten year Gov’t of Canada bond yield is approaching 2 1/2%( meaning a ten year bond investor at this point will barely keep pace with inflation), there is a stong probability that the immense amount of cash on the sidelines will create a strong bid for quality growth and dividend stocks when the markets stabilize .
A net result of this is that there will likely be some very good bottom discount fixed mortgage rates as money floods to the bond market and yields continue to fall, if you are thinking of locking in, call us for specials, they change daily. Other than that, don’t panic, or make any drastic decisions, the sky is not falling … it just seems that way!