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Market Buzz – Canada’s Economy Losses 54,000 Jobs in October while the U.S. Unemployment Rate Falls Slightly to 9.0%
On Friday, November 4th, the TSX Composite Index closed the week at 12,408 points, ending the five day trading period down 111 points, or approximately 0.9%.
On Tuesday morning, we saw the global markets decline sharply during the first few hours of trading when Greek Prime Minister, George Papandreou, announced that he would be holding a referendum on his country’s bailout package. Immediately after the announcement political pressure from both inside and outside of Greece began to mount on Papandreou leading to speculation that the referendum would not be carried through as planned. Only two days after the initial announcement was the referendum officially called off helping to ease the market’s short-sighted fears as it rallied slightly for the day.
The last day of the week brought some negative news to the Canadian employment front with the total economy losing a reported 54,000 net jobs in October, mostly from the construction and manufacturing sectors. This was the worst month for employment numbers since March 2009 and well below expectations, with economist forecasting modest job growth in October. Ontario in particular was the key contributor losing a total of 75,400 jobs during the month, most of them full time. While employment in Canada is still up 237,000 over the last year, the last four months have proven to be fairly dismal on an overall basis. The employment picture was more positive down south of the border with the U.S. economy reporting 80,000 new jobs in October, bringing the unemployment rate down to 9.0% from 9.1%. October marked the 13 consecutive month in employment gains for the struggling U.S. economy, leading some to the conclusion that the economic picture over the next several quarters is not as bleak as previously thought.
Others are not so optimistic, pointing to the fact that while job gains have been positive, they have also been sluggish. Some economists are indicating that the economy would need to generate a minimum of 125,000 jobs per months to create any meaningful economic growth. Rather than draw any firm conclusions from the recent string of economic data we see these numbers as a continuation of the string of mixed signals being delivered in the market. There seems to be no clear indication where the global economy is heading, but the consensus range seems to be neutral to negative and we expect to remain on shaky ground for the foreseeable future.
In an environment such as this, we continue to stress a strategy of focused diversification. Investors need to build their portfolios based on a mix of quality companies from a variety of different risk categories. By including a healthy combination of both defensive and cyclical stocks in the portfolio, investors can help to protect themselves from a down market whiling maintaining the potential to generate more attractive returns in a more robust market. We also advocate focusing on stocks that offer their shareholders an income yield and have the ability to grow their dividends over time. During the period from 2000 to 2010, often referred to as the ‘lost decade,’ studies indicated that dividends accounted for approximately 70% of total investment returns. Over a longer period of 50 years, the number is still 40%. The inclusion of income stocks in a portfolio has always proven itself to be a prudent strategy for investment success and we think this argument is as relevant to today as it has ever been.
Looniversity – Avoid Fear and Greed
Volatility is inherent in the stock market. When investors lose their comfort level due to losses or market instability, they become vulnerable to the emotions of fear and/or greed, often resulting in very costly mistakes.
Try your best to avoid getting swept up in the dominant market sentiment of the day, which can be driven by either of these emotions, and stick to the basic fundamentals of investing. It is also important to choose a suitable asset-allocation mix. For example, if you are an extremely risk-averse person, you are likely to be more susceptible to being overrun by the fear dominating the market and therefore your exposure to equity securities should not be as great as those who can tolerate more risk.
One of the world’s most successful investors, Warren Buffett was once quoted as saying, “Unless you can watch your stock holding decline by 50 per cent without becoming panic-stricken, you should not be in the stock market.”
Mr. Buffett also showed us just how important and beneficial it is to stick to a plan in times like the dotcom boom. Buffett was once heavily criticized for refusing to invest in high-flying tech stocks. He stuck with what he was comfortable with: his long-term plan. By avoiding the dominant market emotion of the time – greed – he was able to avoid the losses felt by those hit by the bust.
Put It To Us?
Q. A friend of mine recently suggested I always use a limit order when buying small stocks. Can you elaborate on why?
- Josh Erikson; Calgary, Alberta
A. Excellent question, Josh. A limit order is any order in which you, the investor, set a specific price at which the transaction may be executed – or a better price if the trader can obtain it. Often limit orders are used when the market for the stock is illiquid and/or the stock is thinly traded (Small-Cap stocks). Place your buy or sell order at a price you feel is fair and be patient. It may take a day or two, but in most cases your patience will be rewarded and your order will get filled. This strategy will prevent you from chasing and possibly overpaying for a stock.
A variation of a limit order is the limit order with price discretion by which you permit the trader some price discretion in executing your transaction.
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