Stocks Are The New Bonds

Good day,

Many of us remember the high interest rate environment of the 1980’s where mortgage rates topped 18% and government bonds paid as high as 10-12%. Although this was a period of exceptionally high interest rates, prior to the late 1990’s bonds were purchased to generate income and keep volatility low, while stocks were purchased for price appreciation.

Over the last 20 years this trend has reversed. Central banks worldwide have been providing their economies with liquidity to the tune of a 1.5% 10 year US Treasury and a 1.04% Canadian 10 year note. Today, over half of the stocks in the S&P 500 provide a higher yield than the 10 year US Treasury and investors have been driven into equities in a search for yield. On the flipside bonds are the new stocks as investors look to bonds for capital appreciation by taking advantage of price swings in fixed income markets.

Whether you believe that recent market highs have been fuelled by government intervention or positive economic fundamentals or a combination of both, the world’s largest equity market is no longer cheap and earnings for US companies have been mixed. Stronger earnings make stocks more attractive and while I do not see a big sell-off in equity markets, I’m not holding my breath for a stellar year-end level for the broader market.

Over the last couple of years we’ve stated that this is very much a stock selection environment and this has yet to change. While the macro picture isn’t worth uncorking the champagne over, individual and sector specific opportunities remain. From a fundamental point of view the financial and the resource space continue to be our favourite undervalued sectors. In addition, regardless of the economic sector we will not ignore the power of stock specific momentum. We continue to acquire individual names in an upward trend, and sell those where the trend has reversed.

Have a great weekend!


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Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO

MNP Tower, 3100-1021 West Hastings St.
Vancouver, BC V6E 0C3
T: 604-558-6830/1(877) 588-6822
F: 604-558-6823


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