OK, let’s say goodbye to the market in 2017.
Your editors at MoneySense are almost always going to steer investors into a reliable but boring Couch Potato portfolio of a few low-fee exchange-traded funds and advise you to resist the temptation to jump in and out of individual stocks (with the exception of sticking with our All-Star stock picks). But it’s still helpful to take stock of the hot stocks and dogs once in a while, and see how trends how are playing out. So let’s look back.
It was the year of dope stocks. And Bitcoin stocks, which, frankly, we find pretty dopey as well (we aren’t touching either of them). Longfin is a great example of how nutty the whole Bitcoin mess got by the end of the year. Its shares were up 2,300% in a single week in December on the Nasdaq, with a big part of the surge coming shortly after the IPO when the founder ‘sold’ himself another related company that has crypto-market aspirations.
But who could forget the impact of a new president in the U.S.? The Donald, who called the market under his predecessor a “big, fat, ugly bubble” that was not to be trusted. Does the market like his tax cuts? You bet. And his commitment to slashing as much red tape as he can, whatever the consequences.
The president has many challenges with figures, and facts in general, and most of the strength in the U.S. job and stock markets may have more to do with the foundation set down under Barack Obama than with Mr. Trump. But it’s not fake news to say the Dow Jones Industrial Average managed to climb to a record number of high closes under Trump, no matter how many times he golfed at one of his resorts.
More important than the number of fresh highs, what about the total gains in his first year? Even though the S&P 500 represents the broader market in the U.S., the Dow still gets the headlines on the daily news. And by this measure Trump beat Obama for gains in their first year of office, 25.08% vs 20.3%. On the other hand, Obama wins as measured by the S&P 500 —25.2% vs 19.42%. Call it a draw.
That’s the U.S., now let’s get back to Canada. The S&P/TSX Composite gained a piddly 6.49%. Financial planners have warned us that this kind of gain is about all we should budget for in future equity returns, but it’s hard to accept that kind of performance when you are looking over your shoulder at a boffo year in the U.S. All the reason, we say, to spread your money around and not keep too much at home. Here is a look at the big movers in Canada from last year. A few marijuana stocks were the stars, joined by a gold miner, Canada’s tech darling Shopify, and rounded out with Air Canada. The losers are dominated by smaller energy and mining plays.
|SP/TSX Comp.||Up 6.49%|
|Top 5 Winners||Top 5 Losers|
|Canopy + 225.4%||Crew – 58.1%|
|Aphria + 199.2||Eldorado – 57.9|
|Kirkland Lake + 174.5||Peyto – 54.7|
|Shopify + 120.3||Birchcliff – 53|
|Air Canada + 89.3||Tahoe – 52.3|
Below is a breakdown of the main sector groups within the TSX index. If you managed to steer clear of energy, which has a 20% piece of the overall index pie, your stock portfolio very likely outperformed. If you want to try bottom fishing the underperforming stocks, check out some advice from our very own Norm Rothery, who has built a strategy on how to play what he calls the Safer Canadian Dogs.
|SP/TSX Comp.||Up 6.49%|
|Health Care||+ 32.7%|
|Consumer Discretionary||+ 20.4|
|Consumer Staples||+ 6.4|
|Real Estate||+ 5.8|
Next up is a snapshot of what drove —and held back— the Dow last year. Boeing did most of the hard work (accounting for a full 20% of the actual point gain on the year). GE was the only real dog of note among the 30 stocks on the Industrial Average.
|Dow Jones Ind. Ave.||Up 25.08%|
|Top 5 Winners||Top 5 Losers|
|Boeing + 89.4%||GE – 44.8%|
|Caterpillar + 69.9||IBM – 7.6|
|Visa + 46.1||Exxon – 7.3|
|Apple + 46.1||Merck – 4.4|
|Wal-Mart + 42.8||Verizon – 0.8|
We haven’t reproduced the list for the S&P 500 here, but most of its gain was due to a select group of tech heavyweights. It was fun calling them FANG for a while but the letters have been changing, with a new name for Google and a rotating lineup of leaders. In the case of the S&P last year, the power team was Facebook, Amazon, Alphabet, Apple and Microsoft. (FAAAM doesn’t have the same ring to it, does it? How about AFAMA? AMAFA?) Some people have taken to calling them the Frightful Five. Whatever you want to call them, they collectively accounted for a quarter of the S&P’s gain last year. These stocks look like winners for the foreseeable future, given their rates of growth, but the valuations are steep and they could ripe for a correction.
Also, we note the cap-weighted version of the S&P 500 is outperforming the equal-weight version. That is a sign of bad breadth, which means a lot of stocks aren’t enjoying the bull party. A sustained breakdown in breadth can be an early sign that a bull market is about to come apart like a cheap sweater. Just sayin’. Corrections are inevitable. Trying to time them is a mug’s game.
Of course, breadth can weaken then rally without triggering a big correction, so let’s not be necessarily bearish on the year ahead. Stay the course but it’s always good to play some defence. And just keep in mind the S&P is up almost 300% since bottoming out in the first week of March, 2009 (Obama’s first year). If it continues to run higher through next August, it will be the biggest bull run since 1928. You probably know, but something very bad happened the year after that but as Couch Potatoes we’re not panicking. Things go up, things go down. In the event of a major drop, buy more.
MORE ABOUT STOCKS:
- An All-Star review
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- Stocks to help you achieve your financial goals
- Where do I find good stock data for Canadian equities?
- Should I buy my U.S. stocks in Canadian dollars?
- Canada’s Best Dividend Stocks 2018