September trading to start on positive note
The S&P 500 enjoyed a final day surge to wrap up August trading, marking a fourth straight month of gains for the index. The monthly advance was impressive, considering the sharp decline we witnessed at the start of the month.
Veteran market strategist Ed Clissold of Ned Davis Research Group told me the price action over the past two weeks is more consistent with an ongoing bull rally, rather than a market top.
Meanwhile, if you believe the U.S. Federal Reserve will begin cutting interest rates as the economy continues to grow, that too could bode well for stocks.
Anastasia Amoroso, chief investment strategist of iCapital told me that historically, a combination of rate cuts and a still-growing economy nets an average stock market return of more than 15% in the 6 months after the first rate cut (assuming there’s no recession).
A bullish stretch for banks
The Canadian stock market also finished the month on a positive note, thanks in part to the financial sector. The best performing bank stocks tended to be the ones that reported better than expected quarterly results — Royal Bank, National, CIBC and Scotiabank, whose CEO Scott Thomson I spoke to about the numbers.
“For the third consecutive quarter, we were able to increase profitability,” Thomson told me.
“We’ve talked a lot about redeployment of capital into our Canadian business, aligned with that North American corridor focus, and the Canadian business is performing well,” he explained.
“We saw multi-product mortgages improvement, we saw cards improvement, we saw small business improvement, we saw the commercial business do well also.”
Hedge funds bet on big tech
Hedge funds are often described as the smart money in the markets – and certainly their brain trust would like to think so. At the end of the day, the hedge fund world includes some standout stock pickers, so their buying and selling patterns are worth monitoring.
Interestingly, one of the simplest strategies for success this year has been to lean into tech. We talked about this recently with billionaire investor Ken Fisher who believes that if stocks continue to rise, tech will outperform because it tends to be the best performing group when the market is up.
Now, more specifically in the world of hedge funds, Goldman Sachs compiled a list of the top long positions among hedge funds. And while the most recent filings found that some tech holdings had been trimmed, as a group, it continues to be a dominant part of hedge fund portfolios. In fact six of the magnificent seven stocks remain the most commonly held names within a group of hedge funds’ top 10 holdings. Here they are…
Amazon
Microsoft
Meta
Alphabet
Apple
Nvidia
Taiwan Semiconductor
Uber
Hess Corp
Eli Lilly
Timing the market is hard
Professional investors often talk about the fact that it’s hard to time the market. We decided to use some historical data from Bloomberg to help highlight why that tends to be the case. For some more magnified numbers, we looked at what might happen to a portfolio over 50 years.
Let’s say you invested $10,000 in the S&P 500 back in 1973, with the goal of growing that investment over decades. If you stayed fully invested in the period that ended in the 50 year period ending in august of last year – 2023 – you would’ve grown your initial investment into a sizeable chunk of change, worth about $380,000.
But that’s assuming you stayed fully invested. Because if you missed even the best 10 trading days over those 50 years, your return would be 55 percent less – or roughly $170,000. If you missed the 20 best trading days, your return would be 74 percent below that fully invested amount, giving you roughly $98,000. The returns get progressively lower as you miss the 30,40 and 50 best trading days over a 50 year stretch. And, in the more extreme example, if you were to miss just 60 days in that 50 year period – if those were the best trading days of the period, your return would have been 95% below that of someone who stayed fully invested – with your end proceeds at around $18,000 or less than double your initial investment.
And since nobody knows when those best trading days will be, timing the market is hard.
Picks of the week
Sam Stovall, CFRA Research: Crocs, Newmont, AECOM (note: picks are based on CFRA research, not Stovall’s individual picks):
Barry Schwartz, Baskin Wealth Management: Alimentation Couche-Tard, Constellation Software, TFI, FirstService.
John Ewing, Ewing Morris Investment Partners: First Capital REIT, Boardwalk REIT, Melcor Developments, Flagship Communities REIT