January 12, 2018

U.S. markets soared again on Friday.

The S&P 500 rose 0.7% and the DOW was up 0.9% to 25,803. Toronto was up just 0.1%.

There appears to be a great deal of optimism that the Trump corporate income tax reductions will fall straight to the bottom line. In reality not all of it will. We have already seen several announcements about some of the money going to higher wages at some large companies. And I finally saw today a discussion that in some cases companies are going to use the lower tax cost to lower prices in an attempt to gain market share. (Oh, so there is still a thing called competition out there, at least in some industries? I was beginning to wonder)

In any event:

Berkshire Hathaway was up 1.7%, Costco was up 1.3%, and Amazon 2.2%.

For the Canadian stocks on our list there were no particularly noteworthy moves.

The U,S, markets could continue to go higher given higher earnings and the income tax cuts and given the strong economy. But these stocks have also likely been going higher because investor sentiment is strong due to the strong gains in the past 15 months and really in the past nine years.

U.S. markets have been rising steadily all the way since the bottom way back in March of 2009. There were modest pullbacks along the way which were quite scary at the time. But looking back now, those pullbacks look very minor. Investing is perhaps the one one area where people tend to get excited about buying at higher prices.

At some point something will happen to put some fear back into the sentiment of U.S. investors.

A reasonable strategy at this time, for those Canadians with high allocations to the U.S. markets, would be to reduce some of their U.S. positions and rebalance some of that back to the Canadian side.

It’s hard to say where the Canadian dollar will go. My own approach has been to reduce my U.S. equities but I mostly held the proceeds in U.S. dollars as I thought that the Canadian dollar might fall giving me a better opportunity to transfer dollars back to the Canadian side at a better exchange rate.