Making sense of the markets this week: October 12


Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.

It’s October. Will stock markets get spooked again?

October is, historically, the most volatile month for U.S. stocks. In fact, it was kind enough to author two of the most violent stock market crashes in history. Those showed up in 1929 and 1987. 

So hang on to your hat, because October 2020 might be a wild ride. But MarketWatch says it’s also an opportunity… 

“October is coming. The most volatile month of the year for the U.S. stock market is here but if you’re prepared there’s nothing to fear. In fact, the market typically rises in October and combined with the volatility, gives investors one of the best opportunities for getting into stocks of the entire year.”

The month also precedes elections that land in November. Does that timing factor in? MarketWatch also offered… 

“You might also wonder if October’s above-average volatility can be traced to the month coming immediately prior to elections (both presidential and midterm). But again the answer is ‘no.’ The stock market in October is more volatile than in any other month even if we focus only on the first and third years of the presidential cycle.”

So, it isn’t election-related. Across the board, October is simply a spooky month. And if stock market history repeats, those tricks (corrections and lower stock prices) might turn out to be a treat. Stick to your investment strategy. 

 Out with the old energy stock and in with the new

ExxonMobil was once the most valuable company in the U.S.—and on the planet. It held one of the top weighting positions in the S&P 500 for many years. But said planet is changing and, for a while, anyway, ExxonMobil was supplanted by NextEra Energy as the most valuable energy company in the U.S. 

From CNN… 

“NextEra Energy, the nation’s largest renewable energy company, briefly surpassed Exxon in market capitalization on Friday, according to UBS. That made NextEra the most valuable company among all US energy and utility stocks. It’s a stunning feat given that Exxon was the most valuable publicly-traded company on the planet as recently as 2013. By Monday afternoon, Exxon had a market value of $142.2 billion, about $1 billion more than NextEra.

“But the fact that NextEra is even close to Exxon in market value is also stunning because it generates much less revenue. Exxon raked in $265 billion in revenue last year, compared with just $19.2 billion for NextEra.”

NextEra has become the poster child for renewable energy. The Florida-based company calls itself the world’s largest utility and the biggest generator of wind and solar energy. Once again we see that the stock markets look to the future. And at times that can mean looking many years out. The market makers who price stocks see a major structural shift in the energy sector, and energy policy. That CNN post also suggested… 

 “Wall Street is betting NextEra could be a beneficiary of a Democratic sweep in November that ushers in a $2 trillion climate spending plan.”

In the Sept. 14, 2020, edition of this column, we observed that the value of electric vehicle maker Tesla could buy these 6 major global automakers

The markets are looking forward and seeing green technologies as the winner. 

Canadian snowbirds might be stuck in the snow

Many Canadian retirees head to the warmer climes of the United States each Winter. They are known as snowbirds. And mostly they like to fly (or drive) to California, Arizona and Florida. But, of course, the U.S.–Canada land border is closed to nonessential travel. (For the record, heading south to keep warm and work on your winter tan is deemed nonessential.) 

This story is creating many headlines and articles these days. And it’s certainly causing a lot of stress for Canada’s snowbirds. There is so much to consider on the health and financial fronts. 

It’s estimated there are more than 300,000 Canadians who make that annual pilgrimage. And this year many snowbirds, faced with the prospect of being stuck in Canada, are still looking to head south. As the CBC offered… 

“Canadian snowbird Elizabeth Evans is determined to head south next month. That’s because her only winter home is parked at an RV resort in Williston, Florida. ‘I don’t have a [winter] home here,’ said Evans, who’s currently living in her summer trailer at a campground in Niagara Falls. ‘I don’t have any winter clothes.’

With the border closed, other Snowbirds who might be trapped in Canada are those who drive their campers or RVs to their U.S. winter destination. And as we’re seeing COVID-19 cases spiking in Canada and the U.S., it’s highly unlikely the border rules will be relaxed any time soon. 

Even for those who are able to fly to their destination, there are so many complicated issues to consider. Insurance policies might be complicated, and it’s important to read the fine print of any policy. Another complication might be the possibility of local hospitals being overrun due to a severe COVID-19 outbreak. A Canadian snowbird might have ample insurance coverage but not have the ability to get care. 

If you want to follow this story, a go-to resource is The Canadian Snowbird Association, which has 110,000 members. 

U.S. stocks tumble as Trump says no to U.S. stimulus deal

This story is making the most market noise this week as President Trump announced there will be no stimulus bill until after the election. That could leave many individuals and businesses without much-needed support. 

Source: Twitter

Soon after the announcement the markets reacted. From Seeking Alpha on Tuesday… 

Source: Seeking Alpha

Then the markets started to recover as President Trump announced his own plans for limited stimulus in a stand alone bill. Earlier, Fed chief Jay Powell said it would be riskier for lawmakers to do too little on the stimulus front than too much.

We might say or conclude that stimulus is propping up the markets. And in a recent MoneySense post (it’s a very good read) Bryan Borzykowski said it’s all about the stimulus. From Bryan… 

“One reason why stocks have done so well so far is because of the money stimulus has put into people’s pockets, such as through the Canada Emergency Response Benefit here, or the $1,200 stimulus cheque in the U.S. If that money dries up, then markets will surely react negatively.” 

And, once again, the stock markets are forward-thinking. U.S. and Canadian stock markets have largely clawed their way back from the lows seen in March, even though the economic recovery is a work in progress and many sectors continue to struggle. The buoyant stock markets suggest confidence that continued stimulus can successfully carry us through to the other side of the pandemic. 

My reading and research leads me to believe that we are in the early innings of the pandemic. Many sectors are likely to need support for years to come.  

At what point do the stock markets get tired of waiting?

Dale Roberts is a proponent of low-fee investing who blogs at cutthecrapinvesting.com

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