Markets rose of Friday as Trump hinted that some kind of at least partial trade deal with China was pending. Later on Friday he confirmed it was a partial deal and markets retreated somewhat from the highs of the day.
U.S. markets are open on Monday while Toronto will be closed. As of late Sunday evening futures trades are suggesting a mildly higher opening tomorrow.
On Friday, the S&P 500 was up 1.1% while Toronto was about unchanged.
Stocks gaining included: Apple – up 2.7%, FedEx – up 3.0% and Linamar – up 3.2% All of these would benefit from a trade deal.
Couche-Tard was down 1.9%.
On Friday, Statistics Canada was out with a very strong jobs report. I always point out that the jobs numbers are only a statistical estimate based on sample and therefore inherently subject to an error term. In addition they are seasonally adjusted so that the gain or loss in any month is over and above any change we would expect just based on things like students returning to school and the Christmas rush. While we should take any one month’s numbers withe “a grain of salt”, the strong September number comes on top of strong August numbers and there si really no denying that Canada has created a lot of jobs over the past year. My memory gores back to a time when the unemployment rate was well over 10% in the early 1980’s and you literally never saw a “help wanted” sign anywhere for years at a time at least in my small town in Nova Scotia. So, I marvel at just how good today’s 5.5% unemployment rate is. Yes, there are many who say it does not count people who would like a job but can’t be bothered to actually look for one. I can tell you from personal knowledge that unemployment was truly a LOT higher in the early ’80’s than it is today. Statistics Canada certainly says so. But there will always be those who choose not to believe the government figures.
Further to the Melcor REIT acquisition. Like all REITs, their build assets are marked each quarter to their best estimate of market value. The REIT is buying a $55 million retail power center. They of course are paying market value by definition. Meanwhile according to their figures the REIT is trading at an “enterprise” (this means counting both debt and equity of about 86 cents on the dollar of market value. If the figures are to be believes, we retail investors can buying into these assets at 86 cents on the dollar versus what institutional buyers like the REIT itself are willing to pay. Normally, I would expect REITs to trade at some small premium to institutional market value. Overall, a 14% discount to market value is not huge but gives some comfort that the REIT is undervalued. Looking at only the equity value of the REIT units the discount to book value is about 30%. Now it could be that the REIT is over-stating the value of its assets and they really are worth less than book value. But they are supposed to report those figures to the best of their ability. There are never any guarantees but these REIT units seem attractive for a portion of a portfolio. They are not likely about to soar but they should continue to spit off a yield that seems attractive. (Recently 8.75%).