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Today’s market performance shows that risk appetite might be returning. But Gluskin Sheff’s David Rosenberg writes in today’s Breakfast With Dave report, that all the major averages are lower today than they were on September 13 when the Fed announced unlimited QE.
The S&P 500 forward EPS forecasts are up just 4 per cent year-over-year now, down from 10 per cent earlier this year. The stock market is up over 14 per cent and there is increased market divergence.
In such a market, Rosenberg identifies the four things he does like:
1. Gold – Gold hit a six-month high last week and the Gold price rally has been fuelled not just by QE3, but also by trade-tensions:
“The Mexico-U.S. tomato dispute for example (tomatoes from Mexico account for 50 per cent of the U.S. market). The EU is going to ask the World Trade organisation (WTO) for the right to impose trade sanctions in response to subsidies that Boeing enjoys at Airbus’ expense. Or what about the American fist-clenching over China? These heightened tensions follow the news from the WTO that global trade flows have all but stalled out.”
2. Dividend stocks – 257 of the S&P 500 companies have announced dividend increases this year.
3. Food / fertiliser – Corn inventories are down wheat prices are expected to rise.
4. Corporate bonds – Yields on corporate bonds are easing and balance sheets look healthy. Rosenberg calls corporate bonds “the gift that keeps on giving”.