Will the Fed have to be looser for longer?

December 5th, 2019

Mid-cap Canadian stocks as tracked by the INK Canadian Insider (CIN) hit new 2019 highs towards the end of last month, but can the good times keep rolling? Based on insider sentiment, we believe the chances look good. Our INK Indicator, which measures sentiment among insiders of TSX-listed stocks, remains over 100% (meaning there are more stocks with key insider buying than there are with selling) and is trending in a bullish pattern. While this constructive insider sentiment trend does not rule out a test of key technical support levels, barring a fundamental breakdown of the global economic outlook, we suspect that Fed money printing will help stocks climb the investor wall of worry into the New Year.

While the trade war remains a potential spoiler for any rally, we expect the tariff battles may drag on in a manner that will provide little meaningful direction for investors. A more immediate concern is the price of crude oil. While weak crude could provide central banks with a temporary excuse for missing their inflation targets, there are growing signs that the Fed is finally taking its inflation mandate seriously. This is a topic we discuss in our December INK Top 40.

 Fed needs to convince the market that 2% inflation is not a ceiling (click for larger)

Fed Governor Lael Brainard has recently suggested that the central bank consider average inflation targeting. That would mean after a prolonged period of missing its inflation target on the downside, the Fed would shoot for a prolonged period on the upside. If the Fed adopts such a posture after it completes its policy framework review next year, it will mean a whole new ball game for stocks. Under such a framework, the Fed will be looser for longer and inflation-sensitive Canadian stocks should initially be one of the relative winners.

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Top 3 Gainers Last Week

Company NameStock Symbol1 Week %
American Hotel Income Prop. REITHOT.UN8.1
Clearwater SeafoodsCLR6.0

Top 3 Losers Last Week

Company NameStock Symbol1 Week %
First National FinancialFN-4.8
Tourmaline OilTOU-3.7
Russel MetalsRUS-3.4%

Returns are as of the last trading day of the previous week.

Featured Clip

Insider of the Week

TECSYS CFO Mark Bentler

Mark Bentler joined TECSYS (TCS) as CFO in September of last year. He stepped in as the company embarked on two acquisitions which turned out to be significant contributors to the company's latest quarterly results announced Wednesday night. The stock jumped 7.2% Thursday.

INK Canadian Insider Index

1 Year Total Return Performance

Historical Performance

Annualized Total Return as of December 5, 2019 04:49 pm
1 Year 11.54%
3 Years 2.59%
5 Years 4.82%
10 Years 8.57%

5 Year Total Return Performance

The INK Canadian Insider Index is used by the Horizons Cdn Insider Index ETF (HII), a 2017 and 2018 Fundata Fundgrade A+ ® award winner.

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