Five Glimmers of Hope for Investors in the New Year

Let’s say good riddance to this entire year. It has not been any fun. The markets are one thing, but the Vancouver snowstorm just messed up our entire family’s Christmas reunion. I will be spending a lot of time on hold with Air Canada, I am sure. It’s drab and dreary outside, the markets are horrible and the war in Ukraine drags on. In many cases, this would just depress me, and many investors might want to sell and try again next year. After all, there are lots of tax losses they can still take in 2022, as long as they sell by Dec. 28. But no. I am going to fight the urge to be depressed. In the spirit of Christmas, I am going to offer some glimmers of hope this season. Like Santa, I am going to make a list of the good things going on in the market.

You can still make lots of money really fast: Two takeovers of companies at premiums of more than 100 per cent happened this past week. First, Maxar Technologies Inc. received a US$5-billion takeover offer from Advent International Corp., which is a premium of 116 per cent. In a smaller deal, Freshii Inc. announced it will be acquired by Foodtastic Inc. at a premium of 129 per cent. In a horrible market year, we are sure most investors would be ecstatic to sell even their favourite stocks for a one-day double, or more. Plus, both these takeovers came with less than two weeks left in the year, giving some portfolio managers a little bit of cheer for year-end. As we have noted before, corporations are flush with cash and are not nearly as depressed as individual investors. If valuations stay weak, we expect to see more deals at nice premiums.

Small caps could bounce nicely in January: The January Effect is one of the most reliable trends in the market, even though it is widely known. In a bad year such as 2022, investors tend to sell their losing stocks before year-end, and even the good companies this year have gone down. Small caps, being generally less liquid, tend to get hit harder than large caps in this year-end adjustment. Thus, when the calendar turns, small caps are very cheap and tend to bounce very well. The trend is so pronounced and predictable that we know some investors who essentially just trade in December and January, and then take the rest of the year off. In some cases, though, small-cap stocks don’t even bother to wait for the calendar to turn before spiking higher. For example, Profound Medical Corp., a $228-million company developing devices to help treat prostate cancer, more than doubled in the two weeks ending Dec. 16 on no news at all.

Housing prices are cheaper: As far as Christmas gifts go, this one might be a bit of a stretch, but there has been a lot of talk about the affordability of houses, and how young people these days may never be able to afford one. Rising mortgage rates do not help this scenario in any way. But house prices are slowly — but surely — starting to tick down. A recent poll notes that house prices are expected to show a peak-to-trough drop of more than 17 per cent. We are not sure how long this price weakness will last, or how low prices will go, but it is certainly nice not to read about any tiny shacks selling for $2 million in bidding wars. Homebuyers this season can, at least, breathe a sigh of relief that the house they want is not likely to get a bunch of over-the-top, house-unseen bids.

Inflation continues to tick lower: The big overriding phantom of 2022, inflation, looks to be getting tired. Annual inflation was 9.1 per cent in June, 8.5 per cent in July, 8.3 per cent in August, 8.2 per cent in September, 7.7 per cent in October and 7.1 per cent in November. The December forecast is seven per cent. Sure, that’s still too high for any comfort level, but the monthly trend is certainly going in the right direction. Used car prices have collapsed, housing, as noted, is improving and oil recently hit a 2022 low despite continuing geopolitical issues. Even food prices showed some improvement in November. Everyone may be talking about a recession, but the psychology of consumers can change. Buying becomes a bit more selective. The result: dampened demand and lower inflation. Wage inflation (see below) may still be an issue, but most everything else seems to be calming down.

Want a job? You can probably get two. Heck, how ‘bout three? We are sure you have noticed those help wanted ads everywhere you go. Companies are offering new employees signing bonuses. You want to work from home? Sure, just please keep working. Despite the doom and gloom elsewhere in the world, job seekers have never had it so good. Companies are desperate for workers. Many industries are experiencing rolling shutdowns simply because they can’t get anyone to work. We have heard horror stories from friends running companies that have 20 employees but need another 15, or about employees no longer showing up. If jobs run the economy (and they do), maybe all the doom and gloom is a little bit misguided, or overdone. Markets are acting like it’s 2008, but the United States that year was losing 400,000 jobs a month. Today, it is generating 200,000 new jobs a month.

There you have it. Five positive trends to avoid the Christmas blues. Let’s just hope Santa does not have a lump of coal in store for us next year as well.

Until Next Time, Take Care,

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Five Glimmers of Hope for Investors in the New Year

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