Volume 49 October 2019

Looking for an Edge Since publishing our last newsletter, the market hasn’t provided much for investors to bank on. The TSX Index, Nasdaq Index, and Russell 2000 were all in negative territory for the quarter. A myriad of negative geopolitical headlines continues to overshadow any incremental bright spots in the market. All of this negativity has led to a lot of investor skepticism, which we see as healthy since any hint of exuberance has been squeezed out of the market. Barron’s Magazine published their Big Money Poll on October 21, 2019 and professional investors are now at their least optimistic since the poll began in 1999. To put that into perspective, investors are more pessimistic now than they were during the Global Financial Crisis in 2008-2009. Figure 1. At the time of this writing (October 23rd), over the past 6 months the TSX Total Return Index is down 0.40% Source: Bloomberg In addition to headlines, the recent manufacturing “mini-recession” is one of the culprits of the sideways market and extremely depressed investor sentiment. The manufacturing industry typically goes through 18-month cycles. We’re nearing the end of this cycle and, like the cycles of the past, expect it to turn positive. Combine this with the lagging impact of all the monetary stimulus around the globe over the past year and we should see an uptick in borrowing, manufacturing, and spending. In addition, the market is underpinned by a strong consumer, robust employment, cheap credit, as well as a record amount of cash on the sidelines. For these reasons we believe that the next move in the stock market is up. VOLUME XLIX OCTOBER 2019 INVESTMENT ISSUES • STRATEGIES • INSIGHTS FROM DONVILLE KENT