Historically, Thanksgiving tends to be a positive week as people rush off to the malls to snap up those Black Friday sales. But this year was the worst we have seen since 1932 for the broader U.S. equity markets.
In the past, November in general has been one of the best months for market returns but this year has been quite disappointing. With just a few trading days left to go, the TSX is down about 6.5 per cent and the S&P 500 is down 7.5 per cent. The large sell off in November has wiped out all gains earned during the month of October.
By now, many individuals have read or heard that many of the issues affecting the stock market are coming from Europe, and now European officials finally understand the magnitude of what is happening. However, the plan they introduced back in October to calm the markets has failed to move forward in a timely manner. Europeans have not taken the steps to execute on their plan quickly enough and the market has sold off once again.
There are major differences in opinion amongst some of the larger European countries as how to execute on this plan and thus, in my opinion, that is what is holding things up over there. Many investors are looking for an institution or facility to take on the role as lender of last resort to backstop the banks and countries in Europe. The International Monetary Fund has tried to calm markets by extending lines of credit to those that need it. However, many people have said the IMF does not have the reserves available to be this lender of last resort. The only institution that has the firepower to backstop the indebted countries and their banks is the European Central Bank (ECB). Unfortunately, Germany has a large influence on the ECB and they have not agreed to this plant. Investors all around the world are calling for a TARP (Troubled Asset Relief Program) like the Americans used in 2008. However, without German support for it, the ECB will not move forward at this stage.
Thus investors on this side of the ocean sit and wait while the North American stock markets grind lower seemingly each week. Overall, I believe the stock market wants to move higher on the back of better GDP numbers, a bottoming housing market and corporate earnings in the U.S. Yet these positives coming out of the U.S. are being overshadowed by the negative news coming out of Europe. I feel that at some point this will change. Europe will either better their situation or they will become more of a nonevent in the coming months. There are some tough decisions that need to be made by the European Union relatively soon and that will decide whether the Euro survives or not. For those that feel this crisis could last a long time yet, I disagree. We are starting to see the writing on the wall with regards to the Euro and if someone does not act too soon, I feel it may be too late.
Therefore, for investors today, I recommend you move to more of a defensive stance with your portfolios. I would continue to buy good dividend-paying investments and consider sectors of the market such as consumer staples, utilities, Canadian financials and telecom names for the core of your portfolio. Investors need to be patient and wait for signs that things are getting better before they take on more risk with their investments.
If you have any questions regarding the above article or are looking
for an investment advisor to help you with your portfolio, please visit
my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a
DundeeWealth Inc. Company. This is not an official publication of DWM
Securities Inc. The views expressed are those of the author alone and
are not necessarily those of DWM Securities Inc.