I must admit that, while being on holidays for 3 weeks in the Caribbean, I intentionally distanced myself from markets and investing. The truth is I did not miss it one bit. The way I see it is the day I left (beginning of May) markets started to go up and the day I returned markets started to go down again. Maybe I should just go on holidays again in hopes that the markets will go up if I do.
The lesson that I was reminded of is that in the short term markets are random. They can go up or down and trying to predict short-term market movements is really a waste of time. Yet, investors everywhere get caught up in the day to day, minute to minute and second to second movements of the markets.
My return to reality meant having to catch up on the markets and investments. In doing so, I went to some of my favorite fund managers to update me on their thoughts. I thought I would share them with you.
Bill Sterling, C.I. Mutual Funds
We continue to see drops in the S&P 500 and an even more painful one in the NASDAQ. This of course raises fears that the global economy is weakening and we are heading back into another bear market session despite fed/monetary easing. We think this is overdone.
In short, what we have here is a tug of war between “don’t fight the fed” and “don’t fight the tape” (negative news). Things could be bumpy but we continue to favour equities over fixed income. Our position in a balanced portfolio is 60% equity and 40% fixed income. On the equity side, we are sticking with sectors that will benefit most from the continued fed easing; consumer discretionaries, financials and tech.”
Investors were forced to swallow a lot of information recently covering the U.S. economy and individual companies. The overall theme of the data released implies that there is still a significant amount of weakness out there, however, the weakness may be decelerating, or in some cases bottoming, thereby signalling a possible recovery later this year. The problem is we still need a lot more data before we can be certain of a recovery later this year.
The key for success right now is to try and avoid as many of these earnings warnings or downgrades as possible leading up to second quarter earnings announcements. That will be more challenging than usual since there really isn’t one dominant group to lock in on. As a result, we are maintaining a healthy level of diversification in our portfolios with companies that are mostly recession resistant.
All eyes are focussed on the Fed. The market has already priced in at least a 25 basis point cut from Greenspan & Co and many analysts are hoping for a 50 to 75 basis point cut. We hope the Fed will please investors.
Shauna Sexsmith, Altamira Asset Management on Nortel
Overall, we have been trimming the Nortel position over the past year and shares were sold in strength at a profit to the portfolio. In March we added to the position as we believed it represented good value at the time. We are less optimistic on the fibre-optic business in general today in light of recent announcements but intend to maintain our current underweight position in Nortel for the following reasons:
- It’s still one of Canada’s leading tech companies with a global footprint.
- The long-term growth prospects are still positive despite the gloomy short-term prospects.
- Nortel should be able to pressure suppliers such as JDS into reducing prices, which should combine to help reduce overall costs. The cost cutting and layoffs will start to have a positive impact on the bottom line.
- Based on reduced revenue estimates (we are using a 20% reduction), Nortel trades at roughly 1.3x sales and the all-time low is 1x. We believe Nortel is attractive at 1x sales.
My two cents
The consensus seems to be that in the short term, volatility will continue to be the flavour of the day. However, remember that markets always rebound after bear markets and usually the recovery is very impressive. Worry less about the day to day market movements and understand that given a little patience markets will reach new highs. Remember market movements in the short term are random but given time, they are very predictable . . . they always go up.