Earning season is in full swing with a majority of the companies reporting mixed results. Generally speaking, the earnings expectations were met by most companies, while revenue numbers mostly fell. Its the new reality – as US companies become more global, result in increasingly dependent on international markets for revenue and earnings. With the march upward for the US$, most companies are seeing pressure on both their top and bottom lines. This trend can be expected to continue for the forseeable future.
On the Fed front, there has been a realization that a policy error was made in December 2015 when the US Fed raised interest rates. Sticking their heads in sand, the Fed gave a all-clear and started raising rates indicating for four more raises in 2016. The January meeting shows that the rates are on hold and now expectations in the market are for the Fed to hold the rates thru 2016 and partly through 2017. Current expectations for a US recession are ~30%, but if the Fed continues to blindly raise rates, the next recession will come sooner.
In Canada, there were expectations of another rate cut in January, and the Loonie took a dive before the announcement. Canada is already in deep trouble, still reeling from the collapse in oil and commodity markets, coupled with runaway food inflation and overheated housing market. The announcement to hold the rates steady brought some stability to the Loonie and the currency has recovered a wee bit.
Outlook for February 2016
As things stand, there are a lot of headwinds facing the economy. Potential recession/depression troubles still exist. The bond market, commodity market, transportation market, manufacturing market indices are all sending very strong signals that all is not well in the world. The overall stock market is being held up with a handful of companies while the rest of the stocks are approaching or already in correction/bear market territory. Also, in the coming months, we can expect bankruptcies and consolidation in the energy market – so, all in all, things are looking bad. Generally speaking, things havent changed much since my Outlook for 2016 post. Be sure to check it out for further investment ideas.
As I mentioned earlier, lots of headwinds facing the economy and things arent looking good for stocks. So, am I selling all my holdings and moving to cash? No. At the end of last year, I took a long hard look at each and every single security in my portfolio and decided that I am comfortable to sit through the next crisis while seeing their value drop. What I do intend to do is accumulate as much cash as I can and wait for the big fat pitches. We are currently holding approx 8% of our portfolio in cash (see our portfolio diversification below), and looking forward to build that up more. If a great opportunity shows up, we might nibble a bit, but our main focus will be to stay in cash and look for “screaming buys“.
Beginning of the calendar year usually sees a lot of dividend increase announcement. As a result, I am excited at the prospect of getting pay raises. We are expecting dividend increase announcements from the following companies in our portfolio.
- Archer Daniels Midland (ADM) – last increase was 16.66% in Feb 2015
- BCE Inc (BCE) – last increase was 5.3% in Feb 2015
- Brookfield Infrastructure Partners LP (BIP.UN.TO/BIP) – last increase was 10% in Feb 2015
- Main Street Capital Corp (MAIN) – last increase was 2.85% in Aug 2015
- Magna International Inc (MG.TO/MGA) – last increase was 15.78% in Feb 2015
- Toronto-Dominion Bank (TD) – last increase was 8.5% in Feb 2015
- Thomson Reuters Corp (TRI) – last increase was 1.5% in Feb 2015
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.
Photo Credit: Alexey Kljatov