Plus: what would Warren do? November 18, 2024 Sign Up | View online IN THIS ISSUE 7 min read 🛍️ Shopify is soaring 🙅‍♂️ Buffett is not buying 💰 Cash is contentious Interest rates are falling. Does that mean cash will be trash once again? We explain below. | Paramount Pictures THE WEEK IN MARKETS Stocks pump the brakes The markets’ post-election rally hit a bit of a speed bump last week: Canadian stocks finished flat, while U.S. stocks gave back half their gains since Trump’s victory. Trader/market watcher Brent Donnelly summed up the situation pretty well, pointing out that stocks, which are already highly valued, just may not keep climbing, no matter how much the Trump administration tries to juice markets. “Reaganomics was great for stocks, eventually,” Donnelly added. “But it took years to get back to flat if you bought post-election.” Enthusiasm, in other words, can carry you only so far until profits catch up. Investors were also reckoning with another potential headwind: U.S. inflation ticked up in October, prompting Jerome Powell, the head of the Fed, to hint that the central bank might slow-roll its interest-rate cuts. There’s at least one market where the party hasn’t slowed yet: crypto. Bitcoin is up more than 100% year to date, driven by hopes that the Trump administration will embrace financial deregulation. THE WEEK IN ONE NUMBER 1995 European stocks, as tracked by the Stoxx 600 index, are up only 5.1% this year, compared to the S&P 500’s 23.7% gain — the biggest gap in performance between the U.S. and Europe since, yup, 1995. The TSX, up 19.2% YTD, is trouncing Europe, too. WHAT HAPPENED LAST WEEK IMPORTANT Shopify keeps surging. The Ottawa-based e-commerce giant seems to be on a roll: it reported 26% revenue growth in its earnings call last week, beating lofty expectations and growing twice as fast as competitors, like Amazon. And Shopify said to expect more of the same in Q4. Amid all the confetti, its stock shot up by 27%, putting it up almost 47% since January 1. Much of its success owes to its recent push beyond mom-and-pop retailers (its specialty) to lure in larger clients, like Mattel, with souped-up enterprise software. What’s incredible is that Shopify stock is now up more than 300% since its 2022 low. But what’s even more incredible is that it’s still down about 36% from its frothy 2021 peak, when investors (wrongly) thought brick-and-mortar stores were kaput and online retailers would eat everything. That just goes to show how long it can take a stock to recover from a bursting bubble. Canada’s #1(in crumbling infrastructure)! If the pandemic taught us anything, it’s that if you can’t get stuff from A to B easily, you’re bound to have a problem on your hands at one time or another. Fresh data from StatCan flashed warning signals in that regard, finding that the remaining useful life of Canada’s “non-residential capital stock” — i.e., roads, rails, ports, schools, water mains, oil-and-gas equipment — has declined for eight straight years. That means governments and businesses haven’t spent enough to keep essential infrastructure from aging — which could cause SNAFUs and might even discourage foreign investment from flowing into the country. By one estimate, since 2015, Canada has gone from having the best-maintained infrastructure in the G7 to the worst. And StatCan estimates it might take $356.7 billion just to fix just our road and water systems. Which is, well, a lot. INTERESTING Why is Warren Buffett in sell mode? The investing godhead has been on a rare selling spree of late, and it’s starting to freak some people out. Over the past two years, his firm, Berkshire Hathaway, has dumped two-thirds of its Apple stock — one of its longest, largest, and most profitable positions — and its current holdings are 28% cash, or US$325 billion. Does Buffett see something the rest of the market doesn’t? Maybe! Right now stocks are pricey relative to earnings, so maybe he suspects a correction lies ahead. Or maybe he’s just down on Apple: Tim Cook has admitted that Apple’s future products might make less money than the iPhone. Or maybe Buffett just made a bad call: despite his reputation as a genius stock picker, Berkshire has performed no better than the S&P over the past two decades, and it clearly missed the recent stock rally. Point being: it’s always interesting to follow the pros, but think twice before you try to mimic their trades. —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🤖 Painting by a robot fetches US$1.1 million at auction. It didn’t even have to cut off its robot ear or anything. Source 🧈 Costco recalls 79,200 pounds of butter without “Contains milk” warning labels. Also adding “Contains no countries” labels to Country Crock. Source 👓 That’s not what they meant by wanting better vision coverage: Amazon developing special eyeglasses for drivers to make delivery faster. Source 🫰 ChatGPT owner OpenAI buys chat.com domain for US$16 million. And writemybookreportforme.com will automatically redirect there. Source CRASH & BURN TO THE MOON 🌯 Shareholders sue Chipotle for skimping on portions. They also hope to make free guacamole a basic human right. Source 🛍️ Chinese store uses “living” mannequins walking on treadmills. Actual mannequins threatening to walk. Source ☕ Tim Hortons bringing back Baileys-flavoured holiday drinks for people who want something that resembles booze in something that resembles coffee. Source 🧀 Balderson Cheese offering 25 $2,000 scholarships to Canadian cheesemakers. That amount of cheddar is goudanough if they’re grating on a curd. Source WHO CARES THE BIG IMPORTANT STORY MONEY 2024 Interest Rates Are (Finally!) Falling. What Does That Mean for Investing? Something big is happening in markets: over the summer, central bankers worldwide began to slash interest rates after almost three years of raising them to smother inflation. And, provided inflation doesn’t spike again, they’ll likely keep at it; for example, investors expect Canada’s “target” interest rate to drop from its current 3.75% to 2.75% by the end of 2025. That means renewing your mortgage might be less painful — but it also might mean a lot of popular investments over the past few years, like money-market funds, won’t yield as much as they have been, while others might yield more. What, if anything, should you do about all this? First, the big picture Generally, financial advisers discourage folks from moving a bunch of money around any time something like an interest-rate change happens in the market. Why? Well, history strongly suggests that the most reliable way to be a successful investor is to keep things simple: save diligently, hold a diverse portfolio that’s mostly stocks, and don’t touch your assets until you’re ready to retire so you don’t rack up transaction fees or panic sell. That huge caveat aside, you might still want to keep some money in stuff other than stocks depending on your savings goals. Why are some investors “getting out of cash”? Over the last three years, “holding cash” — that is, keeping money in savings accounts or money-market funds — has become an uncommonly attractive thing to do with money. That’s because, as interest rates climbed, the return on cash did too: yields have reached as high as 5%, up from basically zero before the pandemic. No wonder the amount of money held in Canadian money-market funds has more than doubled since January 2022. But now that rates are falling, more and more investors are taking money out of cash and investing it elsewhere. That doesn’t mean no one should hold cash, though. It likely still makes sense for people with short-term financial goals and/or low risk tolerance — like if you’re saving for a big purchase and can’t risk your money going poof if stocks tank. That dynamic won’t change as rates fall: cash is still yielding about 3.5%, or about 2% after inflation, and investors suspect it will still return about 1% after inflation when central banks finish slashing rates. That’s not a bad return, historically speaking, for an almost-no-risk investment (though, of course, it pales to the historical return of stocks). What about moving from cash to bonds? The rule of thumb is that falling rates make bonds (which pay out interest at a predetermined, locked-in rate) more attractive than savings accounts, whose yield can, and will, fall sort of whenever. Which explains why some Canadians have recently poured money into bonds. Bonds typically have a higher return than savings accounts and money-market funds, since they’re slightly more risky: it’s reasonable to expect government bonds to return about 1% more than cash in the years ahead. (The yield on the U.S. 10-year Treasury bond currently sits at 4.4%, while a Canadian 10-year bond is offering 3.2%.) Depending on your risk appetite, moving some money into bonds could be a smart move as a short- to medium-term way to store money without much risk. And, as we’ve discussed, personal-finance pros suggest that most folks should gradually allocate a larger share of their portfolios to bonds as they approach retirement. But, if you’re on the younger side, you probably don’t want to tie up piles of money in bonds, because hitting your retirement goals will likely be tough sledding if your portfolio isn’t stock-heavy. Right, stocks! How will they be affected by rate cuts? In theory, stocks become more attractive investments when interest rates and inflation fall, since their expected future returns become more valuable. Also, falling rates generally make business conditions a lot easier — another reason stocks have historically performed well as rates get slashed. The thing is, stocks are already doing well, generally speaking, in part since investors have been acting on the assumption that rate cuts were imminent for a while now. Will further cuts continue to provide a tailwind for stocks and other equities, or are they already tapped out? That’s a question that even major investment banks have wildly opposing views on, which, again, points to the wisdom of holding steady and staying diversified, rather than staking a bunch of your money on guesses about what the future holds. —Ben Mathis-Lilley OTHER VERY GOOD READS 📱 Schools vs. Screens How the ban on cell phones in class is going. (Not well.) | Maclean’s 🏠 How Open Banking Could Get You a Better Mortgage Deal An op-ed on improving mortgage competition and efficiency. | The Financial Post 🙈 50 Years of Streaking — By the People Who Bared It All “It wasn’t sexual in any way!” | The Guardian POSTS OF WISDOM Bluesky, a Twitter-like social app, has surged in popularity since the U.S. election. Threads has too, but the vibes, let’s say, are different… THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Ben Mathis-Lilley (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Clare Douglas (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (lifecycle marketing manager), Matthew Karasz (markets editor) Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE Wealthsimple Core and Premium users who set up automated direct deposits totalling at least $2,000 a month to their Wealthsimple Cash will earn a boosted interest rate of 0.5% (“Boosted Rate”) on top of their current interest rate towards their Cash account balance, up to a maximum of 3.75% total interest rate. 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