By Kyle Prevost on December 8, 2023
Estimated reading time: 5 minutes

Making sense of the markets this week: December 10, 2023

By Kyle Prevost on December 8, 2023
Estimated reading time: 5 minutes

Interest rates stand pat, reports from small Canadian banks, the November stock market rocket, and Dave Ramsey drops pearls of nonsense.

A stock trader sitting on a rocket, showing the November performance of the markets

Image by Freepik

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.

Interest rates stay the same—bank accounts, not so much

As was widely anticipated, the Bank of Canada (BoC) chose to keep the key interest rate at 5% this week.

wpDataChart with provided ID not found!

Given the economy’s weakness shown in last week’s “Making sense of the markets” column, it would’ve been shocking to see the BoC raise rates this past week.

Governor Tiff Macklem refused to give into speculative questioning about 2024 rate cuts.

“Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

That’s a relatively bold statement for a central bank, considering how anemic Canada’s growth is right now. The BoC’s statement did declare that “The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices,” and that “the economy is no longer in excess demand.”

The effects of Canadians stretching their pennies for their massive new mortgage payments (or to save for when their current mortgage terms run out) could soon be problematic. Variable rate mortgages (and other variable-interest debt) are definitely making Canadians prioritize their spending. And it’s killing demand for goods and services.

The two questions on Canadian investors’ minds now likely are:

Will the BoC decide that it has finally over-tightened the interest-rate nut on the economic bolt?
How fast will it decide to apply a grinder to lower interest rates?

Most middle-class Canadians might wish for the BoC to hire a new tradesperson next time.

For now, though, I wouldn’t base investment or mortgage-term decisions on the BoC’s recent statements about what it is likely to do with interest rates.

Small Canadian banks report

After the big bank earnings calls last week, this week we had Canada’s smaller second-tier banks reporting. Laurentian has had a tough year, and that continued in an earnings miss, while Equitable Bank (best known for its EQ Bank online-only financial services) continues to grow at an enviable rate.

Canadian small bank earnings highlights

Here’s what happened last week in the stock market.

Laurentian Bank (LB/TSX): Earnings per share of $1.00 (versus $1.16 predicted) and a revenue miss as well at $247.44 million (versus $291.33 million predicted).
Equitable Bank (EQB/TSX): Earnings per share of $3.64 (versus $2.82 predicted) and a revenue beat at $395 million (versus $291.33 million predicted).
Canadian Western Bank (CWB/TSX): Earnings per share of $0.94 (versus $0.88 predicted) and a revenue beat at $291.8 million (versus $291.33 million predicted).

Also of note this week, Canadian-headquartered, but U.S.-listed Lululemon (LULU/NASDAQ) announced earnings per share of USD$2.53 (versus USD$2.28 predicted) on revenues of USD$2.20 billion (versus USD$2.19 billion predicted). Lulu management announced that Black Friday was its biggest sales day for the history of the company.

You can read more about my take on EQ Bank at MillionDollarJourney.com.

The best online brokers in Canada READ NOW

November was an incredible months for stocks, but you’d never know it

We just wrapped up one of the greatest months in the recent history of the world’s stock markets.

You might want to read that sentence again.

There weren’t many headlines about it. Maybe because being positive wrongly indicates that you’re unintelligent, while pessimism is often mistaken for intelligence. People think they sound smarter when we’re being negative or overly critical. This is especially true when it comes to the topic of investing. Look at all the column space dedicated to Canadian “experts” who predict a once-a-century-collapse every two years.

Here are the raw numbers for November 2023:

The S&P 500 (index of the 500 largest U.S. stocks) was up over 8%. That’s significantly better than its November average of 1.54% going back to 1950. November is historically the best month in the U.S. stock market.

The Toronto Stock Exchange’s S&P/TSX composite index was up 7.2% in November. There are only five single months since 2002 when there was a higher return: November 2020, April 2020, January 2019, May 2009, March 2009. By the way, January 2023 was pretty great too at 7.13%.

Stock markets across the globe also did pretty well in November, with an all-world index up 9%.

Remember, the stock market goes up most of the time.

It pays to be an optimist!

MoneySense’s ETF Screener Tool USE TOOL

Forget “girl math,” here’s “old man math”

One of the most popular personal finance gurus of all time is Dave Ramsey. He’s incredible at promotion, and he’s written more books than the number of times a Canadian NHL team has ever won the Stanley Cup. Ramsey hosts radio shows, appears constantly on network TV, and is generally a one-man financial content machine.

But, does any of this mean that Ramsey actually gives good advice?

I’m sure there is someone somewhere who Ramsey has helped. But the number of times he makes absolutely outlandish, nonsensical claims is incredible. Thanks to Dollars and Data for the assist, here’s his latest take, which is an unedited quote from Ramsey’s show.

“I mean if you’re making 12 in good mutual funds and the S&P has averaged 11.8, and, if inflation for the last 80 years has averaged 4%. If you make 12 and you need to leave 4% in there for inflation raises, that leaves you 8. I’m perfectly comfortable drawing 8. [sic]”

I realize it’s not comprehendible, which is my point. However, Ben Felix, a portfolio manager with PWL Capital, does a good job here of concisely explaining why an 8% withdrawal rate isn’t just wrong, but not even close to what it should be.

Personally, I researched the topic of “safe withdrawal rates in retirement” for months. For my course 4 Steps to a Worry-Free Retirement, I wanted to know how fast Canadians should be spending down their investment portfolios after they stop working. (Moneysense investing editor-at-Large Jonathan Chevreau reviewed my course in the article: “How to plan for retirement for Canadians”).

I highlight my research so that you know where I’m coming from when I heavily criticize Dave Ramsey’s 8% recommendation. In retirement, if you withdraw 8% of your portfolio each year, it’s very likely to end badly. Also, it’s absolutely ridiculous to expect a 12% return on your mutual funds, but that’s another discussion for another day. (Read MoneySense’s reader survey about the worst money advice.)

Always, always verify any and financial claims you learn about, whether you read about it online, see it on social media or hear it on a podcast. And especially, if it’s a recommendation from a friend or family member—or Dave Ramsey.

About Kyle Prevost

Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.