State Of The Markets

Canadian investors went from not seeing an 8% single day drop in the TSX since 1987 to seeing two in a single week.

In fact, today was the largest drop on the TSX since World War 2, and in the last 7 trading days the TSX has shed 25.5%.

The TSX has now dipped down to levels not seen since early 2016. The combination of the Coronavirus and an oil pricing war has wiped out over four years of gains in three weeks.

Instead of a premium newsletter released on the 15th, we’ve decided to instead release more frequent e-mails during these, to put it lightly, turbulent times.

It is times like this where self directed investors become long term earners or losers. And unfortunately, the majority end up being the latter. That’s why we feel more frequent updates will ease concerns and instill some confidence.

The market has firmly entered bear market territory for the first time in over a decade. And it did so with a vengeance. There is not a single Stocktrades Premium member, nor owner, who has ever seen a day like this.

The catalyst for today’s drop?

Primarily the cancellation of all travel from Europe (Excluding the UK) and the United States for 30 days starting tomorrow. The announcement created a sell off due to virus fears and oil cratered yet again due to lowered demand. Also, the suspension of the NBA and NHL seasons added to fears.

Guessing where the market is headed next would be a fools game. There is no telling what will happen, but it’s fairly obvious the containment of the Coronavirus is absolutely critical.

Domestic travel has been rumored to have dropped more than 70% in the United States and as more travel restrictions and lockdowns are put into place, the demand on fuel is dropping. The TSX is an index that heavily relies on the oil and gas and material industries. This is why we’re seeing the TSX take a more drastic cut than the S&P and DOW.

Canadian Bank stocks on our radar

The Canadian financial industry has taken an absolute beating during all of this, and we now see some Canadian financial stocks, like Canada’s Big 5, trading at extremely promising valuations.

Dividend yields are eclipsing 6% for most of the banks, and prices haven’t been this low since 2016.

To put this into perspective, the last time TD Bank traded this low (2016) it had earnings per share of $4.21 and traded at 12 times earnings. Now, the bank earns $6.25 per share, or just over 8 times earnings.

The state of our Bull list

After posting returns that more than doubled the TSX last year, the Bull list has obviously taken heavy damage. The list now sits at an overall loss of 10.05% while the TSX has lost 18.29%. These numbers are from December 31st 2018 and onward.

We’re going to continue to recommend solid companies with strong fundamentals. Just because the market has taken a turn for the worst doesn’t mean there aren’t companies out there that are providing strong growth and value.

However, during times like this is when we urge investors to average into positions. Always keep that in mind.

And, with the current volatility and state of the markets, we are going to be extremely selective with the stocks we bring forward. We’d like to see some stabilization prior to resuming recommendations just to avoid the potential volatility that comes with it right now.

The state of our portfolios

If you’re looking for a bright spot in an otherwise terrible week, you could take the time to look at our model portfolios.

6 of the 9 portfolios are still in the green, with a couple still posting returns in excess of 20%. And considering these were established on December 31st 2018, this is a fairly impressive feat.

Our Overall Take

Bear markets are a healthy event of any market. The difference with the one we’re currently in is the sheer velocity of it. A combination of the Coronavirus and oil wars have decimated the markets.

However, there is one more thing we view is helping the markets accelerate downwards quicker, and that is social media. This is the first stock market crash in the social media era, and news spreads as quick as you can blink an eye.

We hear about every lockdown, every new case. And we hear about it in seconds. This is absolutely adding to the fear and sell offs.

We have the ability to log in to our brokerage accounts on our phones at any time and any place to execute an order. Someone can sell off positions in a matter of seconds after reading a Facebook post or Tweet, all on the same device.

This bear market is no different than the rest in the fact that it will recover.

You’re buying the underlying business. Not the stock. That is absolutely crucial to remember.