As it comes time to close the books on 2016, we reach that point where the financial fortune tellers and psychics get to stand on the soap box and shout their prognostications for 2017.
But wait a minute, how about their predictions for 2016? How did those pan out? Fortunately I like to make a point of noting down their predictions just so we can highlight their proficiency or deficiencies. So let’s take a look and see how those predcitions by the Smart Money People played out. My comments in bold.
2016 will be a year of stable growth
First out of the gate was RBC Capital Markets in November, with a call for stable growth in equities despite forecasts of rising interest rates.
“…the analysts have selected consumer discretionary and consumer staples as their two big overweight recommendations for investors in 2016, saying both offer the kind of companies with stable and secular growth that investors should gravitate to next year. The analysts rank financials market weight and materials and industrials as underweight..."
“...Stable growers tend to deliver more consistent (yet modest) growth and typically generate reliable cash flows,” the analysts wrote. “Names within Consumer Staples, Tech Staples, Business Services, and Aerospace & Defense should remain in favour...”
S&P Consumer Staples index was up 2.5 percent. S&P Consumer Discretionary index was up 5.3 percent. Overall S&P 500 was up 10.3 percent in 2016.
Canadian Consumer Staples and Discretionary were up 5.9 and 8 percent respectively. TSX/S&P Composite was up 17.8 percent for 2016
Not horrible but not exactly the type of returns you want to see if you’re pounding the table on a sector.
Picking the finish
A common prediction is what the S&P500 will close at. I’m always fascinated how people with a straight face will give an exact number. How? Anyway here’s a bunch of them:
As of this typing, the S&P 500 is tracking to close at the 2250 level. Out of 10 soothsayers, 2 are tracking to hit it. That’s 20 percent success rate folks.
Let’s Pick Some Stocks
Netflix up 10 percent year-to-date, Under Armour down 63.5 percent year-to-date
Also notice that subtitle about consumer discretionary looking good for 2016. Here are some more:
- Dollar Tree +0.85%
- Netflix +10%
- UnderArmour -63.5%
- Expedia -8.66%
- Wynn Resorts+25.68%
- Borg Warner -9.18%
- Pulte Group +3.4%
- Trip Advisor -45.1%
- Amazon +14%
About a 50/50 split (Disclosure: I bought into Under Armour. Finishing year down 8 percent).
How did those High Net Worth folks fare?
Now these people should have their sh$t together. They’ve got boots on the ground and put their money where their mouth is. What did they see?
“...Most HNW investors anticipate continued weakness in the Canadian economy. And while opportunities are starting to emerge in the commodities sector (see below), most HNW investors remain cautious about putting too much money to work in Canada. This is a continuation of a trend that started last year, when HNW investors started to pare back Canadian holdings and allocate them elsewhere...”
TSX/S&P Composite tracking to close up 17 percent for the year. Pretty much everything in the Canadian equity market sans Healthcare (thank you Valient) killed it in 2016 and we’ll see more of that coming up. Those emerging opportunities in commodities? Oh they emerged all right.
“…we expect Canadian short-term interest rates will lag U.S. rates. This, of course, will put continued pressure on our loonie; we see it dipping below 69 cents (U.S.), and likely bouncing in and out of that level for most of the year..”
Commodities saved the Loonie, otherwise it was probably heading down to the low 70’s.
“…While many HNW individuals believe the U.S. economy will continue to grow modestly, there is less optimism about the U.S. equity market. We believe the FANGs, for example (Facebook, Amazon, Netflix, Google), will make a major move lower, and this will contribute to a beginning of a U.S. bear market in 2016. Last year, FANGs were the main stocks keeping the S&P 500 afloat, and they likely need to be “ground down” to molars this year…”
Facebook +11.78%, Amazon +14%, Netflix +10%, Google +3.31%
“…Some HNW investors have started to boost their allocation to emerging markets over the past several weeks, and we expect this to continue. throughout the year….”
The broad based iShares Emerging Market ETF was up 7.7 % for the year
Well that didn’t ...look to good. What's up?
About those commodities
Oil and other metals and commodities were taking it in the pants in 2015 and Soothsayers were calling for more pain to come:
“…The immediate outlook for oil prices remains bleak. Goldman Sachs has said prices as low as $20 per barrel might be necessary to push enough production out of business and allow a rebalancing of the market…”
Then we got the front page of Barron’s
Oil poised to close 2016 at near $54/barrel.
Finally a whole wack of Canadian stock picks.
- Intertain Group -7.23%
- Amaya Inc+8.89%
- BRP Inc +42.3%
- Cott Corp+1.31%
- Maple Leaf Foods +17.63%
- George Weston +6.16%
- Loblaw Cos +8.28%
- Whitecap Resources+35.01%
- Advantage Oil and Gas +29.73%
- Secure Energy Services+37.9%
- Home Capital Group+15.49
- Dream Office REIT+11%
- Alaris Royalty Group +1.83%
- Chartwell Retirement Residences+12.91%
- New Flyer Industries +43.57%
- CAE Inc +25.7%
- MacDonald Detwiller and Associates -19.26%
- DH Group -30.39%
- Open Text Corp +25.79%
- Sierra Wireless+0.78%
- NevSun Resources+14.4%
- Eldorado Gold+5.37%
- Lundin Mining+73.16%
- TELUS Communications+11.74%
- Rogers Corporation +8.74%
- Manitoba Telecom Services+27.51%
- Algonquin Power and Utilities+4.31
- Northland Power +24.49%
- Innergex Renewable Energy Inc.+23.83%
I get a little concerned when I see a whole ton of stock picks get thrown out at once. It's almost like a tear gas bomb designed to confuse or create a lot of distraction from the fact that most of these picks are spares. Turns out this one had some legs. 26 of these 29 stocks made money in 2016. Well done Canada. Not so good High Net Worth investors who eased away from Canadian stocks. Who would have thought something else besides Toronto or Vancouver real estate could make money in Canada?
And it just keeps going. Thank you Internet.
I'll leave you with the same one prediction I make year in and year out. For 2017, stocks will go up and stocks will go down. There will be high quality companies that are creating tangible wealth and managing their scarce capital effectively for their shareholders.
Now go out and find them....and if you need a little help...give me a shout ;)
Happy New Year!