Bulls in the market may be patting themselves on the back right now, predicting that the market will continue to recover. And honestly, there is some proof of that. Enough that even the most nervous investors may want to consider getting back in.
Today, let’s look at what exactly is happening in the markets to be so positive about and where you should park your cash today.
Going up
United States company earnings continue to pour in, and it’s proven to be quite fruitful for most stocks so far. As fourth-quarter updates continue, over half of S&P 500 companies have reported thus far. Yet of those that have reported, a whopping 80% have beaten forecasts.
What’s more, combined annual earnings growth in the last three months for these companies is at 8.1%. That’s almost double the expectations that analysts expected just one month ago.
Yet there’s even more to be positive about. While it’s true that interest rates have remained steady in both the United States and Canada, inflation is coming down. The Bank of Canada and Federal Reserve have made it clear that rates won’t be cut until we reach that 2% inflation rate. However, we continue to get closer towards it.
During December, inflation in Canada climbed to 3.6% year over year from 3.5% in November. Meanwhile, in the United States, there were similar results. Inflation hit 3.1% in November, which rose to 3.4% in December. So there are improvements, but we’re not at that 2% quite yet.
Where to invest
The main point here is that inflation is getting under control, interest rates are set to come down this year, and the stock market rally looks like it will continue. Unless there are any big surprises, especially with large tech companies in the U.S., then we could be for even more of a rally.
That means it would look similar to when we reached the market bottom back in October 2023. And if that’s the case, now is the best time to get in on the market. However, I would still advise you to put most of your cash in something stable.
This would include investing in a Guaranteed Investment Certificate (GIC) right now. After all, once rates come down, so too will GIC rates. Whether it’s a 30-day GIC or five-year GIC, these are sure things when it comes to fixed income. And those rates aren’t going to last forever.
Growth ETFs
Yet another area that you may want to consider after parking cash in GICs is growth exchange-traded funds (ETF). This is especially true if you’re a hands-off investor and if you have a while to see your shares grow substantially.
One option to consider is Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC). Now you’ll notice this says “ex Canada,” and that’s for a reason. Canadians tend to invest heavily in Canadian companies. And that’s great! But you also want global exposure, especially if you want growth in the near future.
So, by investing in the VXC ETF, you’re gaining global exposure to all market capitalizations. Furthermore, you’re gaining exposure to different types of industries, sectors, and growth strategies. All while investing in just one ETF managed by professionals.
And there has certainly been a lot of growth. The VXC ETF has grown 19% in the last year and about 8.5% in just three months. Finally, you get an additional 1.69% dividend yield to hold as well. So, certainly consider this stock as the market recovers — even if you’re a nervous investor.
