Preferred Share Surprise - Earnings: SLF, MFC, GWO, REI
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The upside surprise last week comes from the least expected sector, the rate-reset preferred shares, where 70 names were up from 10-15%, the next 70 issues gained by 5% or more.
With the exception of China and the Nasdaq, stock indexes were higher last week. The breather for the Nasdaq comes as no surprise, with price earnings ratios at a lofty 35x and higher. Chinese market enthusiasm was intentionally cooled by the Chinese government. The "rate-reset heavy" S&P TSX Preferred Share Index was up on average by 6% for the week.
The jump in price for the rate-reset preferreds is an indicator interest rates are expected to head higher. This is a sharp contradiction to the actual sentiment for interest rates, which is downwards. Central bank rates are widely expected to go lower if they move at all. On Wednesday of last week, newly appointed Bank of Canada Governor Tiff Macklem confirmed Canadian interest rates were not going to rise any earlier than 2023, if then. He has previously stated interest rates were not going to rise for a long time. This is nothing new; interest rates are expected to remain low with negative interest rates already happening in a number of countries.
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