E Point Perfect

Making sense of the markets this week: October 9

Bad news is good news for Canadian investors

Possible central bank moves continued to dominate the investment news cycle this week. In the (weird) market universe investors created for themselves, bad economic news is a great sign for the value of companies within that bad economy. Let me explain… 

Shouldn’t bad economic news mean companies make less money? As a group, investors are making decisions that affect the markets. The belief that bad economic news means share prices go up seems to be self-fulfilling. It appears the vast majority of share prices are now in lockstep and are moving to the beat of inflation-rate data and interest-rate moves. It doesn’t matter if you’re a giant company with a successful quarterly earnings report (read what I wrote about Nike last week), investors only have eyes for the Fed. 

While waiting on the U.S. jobs report on Friday, the Fed speculators were focusing on the data from the Manufacturing Purchasing Managers Index and the U.S. JOLTs Job Openings earlier in the week. Clearly, stock investors are hoping to see evidence that the increased interest rates advocated by inflation hawks are having their desired effect on inflation.  

Consequently, if we hear news about lost jobs and crushing worldwide recessions, that’s viewed positively. If everyone still has a job and people are making more money, then the dominant thought appears to be that the Fed will be forced to continue to raise interest rates. Raised rates will not only reduce borrowing, depress the current value of equities, give Canadian and U.S. investors better fixed-income options relative to stocks and make life really difficult for developing economies—it will also feed the increasingly alarmist headlines that a recession is inevitable.

For those of you trying to calibrate expectations, the Manufacturers Purchasing Index and the preliminary jobs data seemed to indicate that the economy was indeed heading in a negative direction. That means good news for stocks. 

Of course, this type of speculative momentum could all be reversed by a few sentences from Fed Chair Jerome Powell at any time. Your future portfolio will almost assuredly thank you if you choose to ignore all this noise and stick to a long-term investing plan.

Note: You can hear my in-depth thoughts on the current bear market at the 2022 virtual Canadian Financial Summit, October 12 to 15. I’m joined by esteemed MoneySense colleagues Jonathan Chevreau, Lisa Hannam, Justin Dallaire and Dale Roberts, as well as 30-plus other Canadian financial experts. It’s free to view as a MoneySense.ca reader. But there are limited spaces, so don’t delay in reserving your spot. Read more about the MoneySense sessions.

Booze a better bet than breeches 

With Constellation Brands (STZ/NYSE) and Levi Strauss LEVI/NYSE) reporting earnings this week, investors got another look at the current mixed environment for consumer goods.

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