Making sense of the markets this week: September 11

Is beating the bank easier than fighting the fed?

The U.S. has its mighty Federal Reserve, and Canadians have the central bank called the Bank of Canada (BoC). And while we may pretend we have full autonomy over our monetary policy, in practice it would be very difficult for us to deviate much from that of our southern neighbour.

Consequently, it came as no surprise last Wednesday when the BoC announced that lending rates would be going up by 0.75% to 3.25%. This is the highest that rates have been since 2008.

In further guidance, the central bank pointed out that “the policy interest rate will need to rise further.” These stern warnings are notable in light of the fact that, last week, Canada’s gross domestic product (GDP) growth came in well below analyst forecasts.

Given there was speculation the BoC was going to take an even more drastic approach to cutting inflation with a 1% rate raise, it wasn’t a big surprise that Canadian equities moved upwards on Wednesday, with the most extreme policy stances seemingly off the table for the time being.

The Canadian Dollar continued its trend of negative news headlines, despite being one of the best-performing world currencies of the year. This is due to our constant comparison to the U.S. dollar and its ultra-strong performance in 2022. 

I think those “experts” who predicted the imminent collapse of the U.S. dollar should return their crystal balls, as they appear to be broken. 

When compared to the U.S. dollar, our beloved Loonie is down on the year, but we’re still one of the better performing currencies in the world.

With interest rates on fixed-income products creeping up, the MillionDollarJourney post on the best short-term investments in Canada might be useful to folks looking for a safe place to park some savings.

GameStop rollercoaster continues

The incredible tug-of-war over the share price of GameStop (GME/NYSE) continues to pit basic business fundamentals against a cadre of retail traders determined to buy shares of the company at any cost.

I have never seen another company announce yet more massive losses (the latest in a trend of quarters that have produced little-to-no-profits) and rally 10% at the conclusion of the announcement.

Gamestop’s quarterly earnings revealed:

• Total revenues were down to USD$1.14 billion from USD$1.18 billion a year ago.
• Losses were “up” to USD$108.8 million compared to last year’s USD$61.6 million.
• Losses per share were “up” to USD$0.36, relative to last year’s USD$0.21.
• Inventory is ballooning as demand decreases.

Yet incredibly, the stock rallied 10% in after hours trading!

Management’s much ballyhooed plan back to prosperity appears to be based on becoming a trading place for non-fungible tokens (NFTs) and hoping the world enters a time warp back to 2007—back when the company actually made money.

All of that appears to be irrelevant considering what some people are willing to pay for the shares. Because analysts predicted the company would lose USD$0.41 per share, some investors decided that a company that can’t make any money is still worth USD$7.31 billion. With the stock down only about 36% so far this year, where it goes from here is completely unknown.

Share prices of another meme stock fell drastically this week after a tragic personal event. Law enforcement sources confirmed to CNN that Bed Bath & Beyond (BBBY/NASDAQ) CFO Gustavo Arnal jumped to his death last Friday. Arnal and Ryan “Chewy” Cohen had both recently been named as defenders in a class action lawsuit that alleges the company “pumped and dumped” shares of Bed Bath and Beyond. Cohen is also the current Chairman of GameStop.

In other earnings news, DocuSign (DOCU/NASDAQ) posted earnings of USD$0.44 share (versus a predicted $0.42). Shares rallied in after hours trading on Thursday, but are still down over 60% year-to-date.

Investing trick-or-treat arrives early

Carson Wealth may have almost perfectly top-ticked (also dubbed a market peak) the market with its end-of-the-month post about the S&P 500 being 17% higher than its June 2022 lows.

I remember reading something a few years ago about October being the best month on average to put money into the market, but I was unaware of just how bad September has historically been!

The article points out a few of the common theories on why September’s typically spooky for investors:

• Wall Street traders are prone to the same psychology as the rest of us, and their en-masse return from vacation leads to the trend of selling off.
• Many hedge funds have their fiscal year-end to worry about, so they wrap up positions for tax purposes—especially if they’re losses that they can use to offset gains.
• Self-fulfilling prophecy at its best—“September has been bad, so I better sell now!”

The flip side of this argument is that late September also appears to be the best month to be a buyer. Just in time for holiday-themed consumer economic boosts and the “Santa Claus Rally,” when the markets show growth in the end of December and into early January.

Personally, I’m not sure how much I buy into some of this seasonality stuff. It seems plausible that human psychology does influence seasonal patterns. But it seems equally as plausible that these data are “noise” and that going forward, the next 50 years might see September as the month that produces the best returns, as each month eventually reverts to the mean.

Some good news in U.S. labour markets

Liz Ann Sonders’ Twitter account is always an good spot to go to feed your fix for charts. She recently posted a couple of graphs about the U.S. labour market that I found quite interesting, as they appear to contradict some pretty dominant narratives out there right now.

Sonders’ first chart looked at the construction industry specifically.

Those job numbers are kind of amazing, when you think about it. Construction jobs are often key for young men without college degrees, and those folks have had a tough time the last couple of decades. Further, it illustrates that companies are still much more willing to invest in building new assets than they were between 2012 and 2017. That’s got to be a good sign!

The second chart includes the prime-age (25 to 54) labour force participation. While labour participation numbers don’t get nearly as much attention as their more popular cousin—unemployment rates—they are arguably just as important. While unemployment rates measure how many people are working divided by the number of people looking for work, the labour participation rate tracks the percentage of the population currently working or actively seeking employment.

As you can see, this key demographic is headed back to work at really high levels. And yet, there are still “Help Wanted” signs everywhere.

These types of employment data are the reason I continue to have hope for the medium- and long-term economic prospects—for at least North America, if not the world. Doomsday headlines about recessions and stagflation get more clicks, but I just don’t see how we’re going to experience some massive depression, as long as this many people are working. The U.S. now has more jobs than it did before the pandemic, is at an all-time low for unemployment and has very solid overall workforce participation numbers.

Sure, as the economy slows down, some of those Help Wanted signs will come down. And both the unemployment rate and labour participation stats are probably going to trend back to long-term averages—but that’s still a far cry from the Grapes of Wrath scenarios we see some experts referring to.

I’ll keep trusting long-term metrics and investment strategies as opposed to headline-driven reactions.

Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, you can find him helping Canadians with their finances over at MillionDollarJourney.com and the Canadian Financial Summit.

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.

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