You may have noticed that there was an election in the U.S. this past week. Donald Trump will be returning to the White House. As comedian Bill Maher joked, Americans never turn down seconds. The good news is, it was a convincing victory. There will be a peaceful transfer of power. Others will say, the bad news is – it was a convincing victory. But the thing is, it doesn’t matter what we say, the voters have spoken, loudly. America and the world will have to deal with it and move on. And with respect to your portfolio, it simply doesn’t matter over the longer term who is in power. The American economy is a much more powerful force than any sitting President. That said, the markets certainly voted and they like the prospect of lower taxes and less regulation. The U.S. stock market has the best week of the year on the Sunday Reads.
On Seeking Alpha I offered (before the election day) Democrats’ stock returns beat Republicans’, but it still doesn’t matter who wins with respect to the markets, and investing.
Here’s the key chart / Tweet from the post …
Here’s the very hot heat map for the week …
We see the growth stock surge and most of the defensives are cold. That’s good news for retirees and near retirees of course. You can take profits for spending, and you can also move profits from growth to defensives or cash/bonds, if your weightings dictate.
It’s all good news for accumulators, you’re making more money.
Election recap
On Wednesday, the stock and bond markets cast their first ballots on the next four years. Stocks moved higher, as did long-term interest rates. The S&P 500 was up 2.5 per cent, the Nasdaq Composite was up 3 per cent.
The S&P 500 soared 4.66% for the week to end at 5,995 posting gains in four out of five sessions.
U.S. bonds sold off on Wednesday but recovered through the week, up modestly for the full week.
Trump’s potential tax cuts mean larger deficits for a government whose budget shortfall is already massive. The Congressional Budget Office puts this year’s deficit at US$1.9-trillion, or 7 per cent of gross domestic product. Canada’s federal deficit this year is budgeted to be 1.4 per cent of GDP, falling to 0.6 per cent in the 2028-29 fiscal year.
Economists have suggested that the Republican platform will increase the deficits much more than would have the Democrats’.
If we try to frame the Trump regime in a ‘dumbed down’ sentence – economy good, debt bad.
With respect to some of the Trump policies that might hurt the economy longer term (mass deportations and massive across the board tariffs), we’ll have to wait and see. In November of 2024, we honestly have no idea what the Republican administration can do, or will want to do on those fronts.
Of course, the tariffs (taxes) have the potential to be inflationary. The Committee for Responsible Federal Budget estimates that under Mr. Trump, the midpoint of his promises would deliver deficits of “9.7 per cent of GDP in 2035, with a range of 7.7 to 12.2 per cent of GDP in other scenarios – the highest levels reached outside of a war or recession.”
Sectors for the week
- #1: Consumer Discretionary +7.62%
- #2: Energy +6.16%
- #3: Industrials +5.93%
- #4: Financials +5.53%
- #5: Information Technology +5.44%
- #6: Communication Services +4.09%.
- #7: Real Estate +2.68%
- #8: Health Care +1.57%
- #9: Materials +1.46%
- #10: Consumer Staples +1.20%
- #11: Utilities +1.19%
Bitcoin was up 10% for the week (it’s up much more into the weekend). Trump is seen as bitcoin-friendly.
Gold softened but has been on an incredible run.
- Canadian stocks (XIC.TO) were up 2% for the week.
- International stocks (EFA) were down 0.75%.
If you hold an asset allocation ETF you are participating big time as the U.S. market dominates the global equity indices. iShares XEQT was up 3% for the week. That managed global ETF portfolio is up 24% in 2024, and 31.55% over the last year.
More on rebalancing portfolios
At the Globe & Mail, Rob Carrick looked at rebalancing and the weight of U.S. stocks in various funds.
We’ll look at balanced portfolios, with a rough mix of 60-per-cent stocks and 40-per-cent bonds, as a point of comparison.
The Roboadviser Justwealth’s global balanced growth portfolio has an overall 28-per-cent portfolio weighting in U.S. stocks, while Wealthsimple’s classic balanced portfolio has a U.S. equity weighting of 18.5 per cent.
Among asset allocation ETFs, the Vanguard Balanced ETF Portfolio (VBAL-T) has a 27.4-per-cent weighting in U.S. stocks, the iShares Core Balanced ETF Portfolio (XBAL-T) has 28.4 per cent in U.S. stocks, the Fidelity All-in-One Balanced ETF (FBAL-NE) has 30 per cent and the TD Balanced ETF Portfolio (TBAL-T) has 25 per cent.
Check out the total return comparisons on the Canadian Asset Allocation ETF page.
Among mutual funds, the Mawer Balanced Fund has a 15.3 per cent U.S. equity weighting, while the massive RBC Select Balanced Portfolio has 25 per cent.
On Cut The Crap Investing, and for the Core Balanced ETF Portfolio, I have the U.S. stock weighting at 30%. I’ve long had a bias for U.S. stocks of course.
The U.S. is where they keep most of the best companies on earth.
Dale (Cut The Crap Investing)
And while the U.S. markets are expensive, it is still where they keep the growth. In a growth-scarce world, investors are willing to pay up for current growth and future growth prospects …
While I was writing for MoneySense I offered that growth will be scarce, and of course we want to own enough of the growth that exists.
Bitcoin is scarce, gold is scarce and the U.S. is certainly where they keep the earnings and revenue growth. Investors are seeking scarcity.
When to rebalance your bitcoin position
I did hear from a reader or three on the size of their bitcoin position. Should I sell some? goes the question.
Of course, it all depends on your desired asset weight. It could be 2%, 3%, 5% or more. It all depends on your tolerance for risk and your conviction for the asset. If your target was 5% and it has moved to 7% or more, then sure take some profits. It is such a volatile asset so rebalancing is key in a portfolio setting.
If you don’t have a portfolio weighting target, adopt one now.
I’d suggest we’d need to go to 2-3% as a minimum so that any major move over the years and decades will have an impact on your portfolio and your life.
I’m more than happy to collect fees (tolls) on the bitcoin ETFs and the market by way of owning BlackRock (BLK), one of my 3 U.S. stock picks. The others are Apple (AAPL) and Berkshire Hathaway(BRK.B).
This is a popular image this week.
Of course, bitcoin could be $100,00o or $30,000 by the time this post gets to digital press, ha Bitcoin tacked on another 4% or so this weekend.
You’ll find gold and bitcoin as considerations in the new balanced portfolio.
The low liquidity issue for XDU
I created a sizable position in iShares U.S. Quality Dividend ETF XDU.TO. That’s a Canadian Dollar ETF that invests in U.S. quality stocks. I like the defensive sector arrangement, low volatility and favourable valuation. It complements our U.S. stock portfolio.
Given that it is a Canadian Dollar ETF, the fund will pay the withholding taxes on U.S. Dividends. Given the modest yield it is a very minor event. I see no problem using that in any account from RRSPs, RRIFs, TFSAs and Taxable.
A few readers asked about the ‘low liquidity’. Please have a read of – Ever wonder who makes your ETFs and how they stay on track?
You’ll see that an ETF is not priced on supply and demand. An ETF is priced by value of the underlying assets – the stocks and bonds in the fund. There is ample liquidity in the stocks of XDU – Exxon Mobil, McDonald’s, Coca-Cola, Johnson & Johnson, etc. etc.
Low trading volumes are not an issue.
Telus calls to say – “I’m OK”
And finally some good news in the Canadian telco sector. Telus offered some solid news. Of course, you could frame things to sound very attractive as management did.
Meanwhile BCE continues to go in the wrong direction IMHO. Instead of paying down debt and cutting the dividend they are increasing debt and holding the dividend. I’m glad to hang up on Bell. I also sold half of my Telus in previous months. My wife still holds Telus and Quebecor in her Canadian stock portfolio.
The telco sector has had a rough ride. Hopefully more stability returns as they cut costs (payrolls and CapEx) and get some help from a lower rate environment.
It would be great if they went back to being boring slow growth companies.
More Sunday Reads
At Findependence Hub Jonathan Chevreau looks at Trump 2.0.
At Dividend Hawk you’ll find a summary of important and interesting news and events over the last week related to his portfolio holdings. Plus notable articles from other websites that caught the Hawk’s eye.
That includes a look at Qualcomm (QCOM), one of my own growth holdings. The stock has been on an incredible run and received another boost.
QCOM reports fourth quarter Non-GAAP EPS of $2.69, 33% above from last year and $0.12 more than expected. Revenue grew 18.1% to $10.24 billion, topping estimates by $310 million. For Q1 FY25 Management guides Revenue of $10.5B-$11.3B and Non-GAAP diluted EPS of $2.85-$3.05. Management has also approved a new $15.0 billion stock repurchase authorization.
You’ll see some earnings overviews on several Canadian stocks as well. From TC Energy to Manulife.
Banker on Wheels always cycles through a rich mix of posts and podcasts.
Here’s how Banker broke free from the hampster wheel known as a corporate career.
Also in the post, take a look at the idea of ‘mini retirements’.
That’s a theme that I embraced and enjoyed a few times through my 40’s and 50’s. I put much more value on family time and health over endless corporate ladder climbing.
And, where does economic growth come from?
Someone who’s doing it right – Bob at Tawcan looks at their future travel plans.
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