Markets Mondays Missive


Equity markets remain in a neutral phase longer term (monthly data). This condition, market by flat readings for the TSX and S&P has remained for a year or more.  On the shorter term, the TSX has come up to its pre-Brexit high, the S&P has surpassed it. These risk-on moves are reflected below in our price momentum tables.

While there is no known immediate bullish or bearish catalyst, it appears that markets are on pause with evidence building that a correction through time and/or price is underfoot. More on this following the tables.


HEAT MAPPING- Short term

Top 5 Weekly Asset Classes: Silver remains in the top spot, and stocks replace bonds and bullion as risk-on moves into favour

CLASS 2016 04 18


Top 5 CDN Sec-Wkly: Metals & Mining, Gold Producers, Materials, Small-Cap, Energy. Top 2 swap spots. Utilities, real estate and income trusts fall.

CDN 2016 04 18


Top 5 US Sectors-Wkly: Semis on fire, the Russell 2000 jumps up to 3rd from 6th, and utilities drop out but still nicely positive

US 2016 04 18


TOP 5 Int’l Wkly: India and Thailand are replace by South Korea and South Africa. Notice that post-Brexit the only negative performance is from European countries.

INTL 2016 04 18


TOP 5 TSX60 Weekly: Still dominated by resources at the top with energy, utilities, staples and infrastructure rounding out the group outperforming the index.

TSX 2016 04 18



Timing markets is a difficult task, one that we do not try to do. We prefer to understand the general landscape as measured by risk.  The pro-risk move has slowed, expending most of the momentum since the market (read: algos) suddenly decided that the UK vote to leave the EU was in fact good not bad.  As mentioned off the top there are no known catalysts to change the positive short term move to negative but we are entering the historical period of weakness as of today. What we do know is that many events that happen in the quiet of summer tend to get a larger market response because volume is light and most of the trading desks are staffed by the less experienced.  What works in the summer? Bonds, utilities, healthcare, and staples.

Interest rates, as shown by the US 10 year treasury (yield), are moving up to its break down level between 1.75% – 1.65% and are now overbought presenting better entry levels.  Core portfolios contain between 35-45% of CDN and US AAA government bonds

TNX 2016 07 16


Volatility has also dropped post-Brexit, verging on levels last seen last August and in 1998 and 2007.  Protection is cheap.

VIX 2016 07 16


The % of TSX stocks above the 200DMA is high and peaking.

CDN stock Above 200dma 2016 07 16


The % of S&P stocks above the 200DMA is high and peaking.

US stock Above 200dma 2016 07 16


The stock vs. bond relationship shows stock are relatively more expensive that US 7-10 bonds

Stocks vs Bonds 2016 07 18


The TED spread – the difference between the rates on 3 month LIBOR and 3 month US treasuries – has been gently rising against flat equities.

TED 2016 07 18

The current market structure requires investor portfolios have a high level of “convexity”.   Portfolio convexity means that assets are allocated and the balance adjusted across defensive and pro-growth securities, whatever class the securities are in.  This insulates assets from both the long and short term consequences of “catalysts”, particularly governmental.  Its diversification by risk not asset class. In addition, the investment climate requires investors examine what the best mix between absolute (actual annual return) and relative (the difference between absolute and a benchmark such as the TSX) performance is for their asset goals.

At present portfolio convexity for CastleMoore portfolios is not balanced and core portfolios are tilted strongly toward absolute returns.


Chief Portfolio Manager