Q4 2022

 

Queen Elizabeth II left us in September 2022 but the phrase she coined a few years earlier “Annus Horribilis” was aptly fitting for 2022.  

 

Russia, Ukraine, FTX & S.B. Fraud…and recently balloons over North America

 

 

The continuing story of Ukraine and deepening tensions with China are still in the headlines with no real solution visible at the moment. Recently there have been a few objects floating over North America. It is doubtful they are all renegade weather balloons. What was their purpose? Let us see if we find out soon.  

Inflation has had a modest downtick from the excessive levels seen in prior reports although it is still well above the desired 2% level. It’s going in the right direction so far and by some measures, the central banks have tightened to levels that will force a recession. Will we have a soft landing, hard landing, or no landing? The last option is a new one to most of us. Does it mean we (the economy) stay aloft without all the heartache that come along with a downturn?

The limelight was stolen for a spell by something other than geopolitics. It was a good old-fashioned fraud, the likes of which we see usually after a market or sector implodes. Enter SBF – aka Sam Bankman-Fried. Another moniker thrown around is Sam Bankrupt Fraud. Madoff, it seems had a protégé. This episode is still being unwound but has all the attributes of the classic story we have seen in the past and will no doubt see again. There is always fear and greed out there doing its job as a lead motivator. Netflix is already on this one.

For the Quarter & Year

The year ended undoubtedly as one of the worst on record. If you marry a belligerent equity market with an interest rate regime spawned from a horror flick, you end up with what we experienced. The returns for many “conservative” portfolios were negative with a double-digit handle, I.E. -10% and more. The bond market which has long been the savior for balanced portfolios in rocky times snatched defeat from the jaws of victory this time. The rate of change of interest rate advances, which we highlighted in previous reports, influenced the markets and it was still in place at year end. GIC Rates from early 2022 in the 1.5% range were replaced by offerings in the 5% level. Great for savers or at least better than the last decade. This all translates into a subpar performance for most financial assets even in the tried and true “balanced portfolio”. Sentiment continued to be very bearish and by some measures, was at historically high readings. (This according to many sources monitoring this and similar metrics).¹

“When all the experts and forecasts agree- something else is going to happen”

          Robert Farrell – Rule # 9 of 10²

So, what does this all mean? 

Taking to mind (and heart) the sage observation just above, you may think a change in the weather is near. Recent inflation numbers, although high, are potentially peaking and damage is being done, to some extent, to the housing market and other economically sensitive sectors.¹ We have to remember this is what the Fed and Bank of Canada actually do want, or at least something akin to a foot on the economic brake pedal: further slow things down a bit. Will they pull it off and get the soft landing we hear about all the time? We will know soon enough.

The Numbers  

At the end of 2022, the TSX was down -8.97% for the year and up 5.10% for the quarter.  The S&P500 up 7.08% for the three-month period and down -19.65% for the year. Nasdaq down -1.03% (quarter) and -33.51% for the year. The Nasdaq was the only index off in the quarter if you look at all the major North American indexes, although not by much. Many technicians claim a bottom was put in during October.¹ We will see.

Gold made some headway up 8.27% for the quarter but still down 1.98% for all of 2023. Still NOT a stellar inflation hedge. Oil started off the first months of the year with a literal bang, but faded most of the advance away. It was up 4.46% for the year, after being up substantially more, having been in the $130 range and now with a $70 handle.¹ Our Canuck Buck Recent depreciated approximately 6 cents vs the Greenback over the year in a fairly consistent trend. The Spot at the end of 2023 was $1.3549.¹

Interest rates – One Highlight

As alluded to above, for the first time in recent memory the venerable GIC cracked the 5% barrier on the upside.¹ It’s been a long time coming and beleaguered savers can cheer a bit… until they take into account taxation and inflation, but at least it’s much better than the 0.26% that money market funds were yielding in early 2023.¹ The longer out maturities however still paint the infamous “inverted yield curve” picture, meaning the best (highest) rates are in the short-term section of the bond market.¹ We will see if there is any change here in 2023. We have been dipping our toes into some longer dated issues for clients where appropriate, but cautiously.

We look forward to spinning a much better yarn 365 days from now. As discussed above we know there are many challenges lying ahead but what if things turned out all right?

As a reminder, and always a constant, we will be adhering to our belief that a proper and appropriate asset allocation suits our clients best. From this we will not veer. Out of messes come opportunities and they will show their faces again. As always if you have any questions or concerns feel free to contact us.

Q3 2022

Third quarter 2022: Previous bear markets have a keen understudy.

For the Quarter

The previous quarter’s trends continued in the same direction this past quarter;  at the end of September, the bond and stock markets remained on pace to challenge some of the worst returns on record as measured by Bloomberg and Factset.¹ The U.S. Federal Reserve (Fed) continued to openly state its intentions for higher rates both by jawboning and via the media and public appearances. This is continuing as we write this in early October. Most central banks around the world, including our own, are in lockstep, although the U.K. did stutter a bit recently.

The rate of change and the amounts of rate hikes are still being signalled, and parts of the economy are now definitely showing signs of the tighter policy. One example is our local housing market. According to recent September 2022 statistics, sales volume was down 42.6% versus the previous year with prices off only marginally. Year-to-date activity was down 27.3%, but prices still were holding double-digit gains.² At this point, higher rates are having an effect in volumes if not prices.

Sentiment is still showing in extremely negative numbers. As also highlighted in the second-quarter letter, levels like the current readings often spark violent rallies or signal a change in trend. This has happened in the past and will most likely do so again. In fact, there was a 20%+ rally in the S&P 500 Index from late June until August of this year. In bear markets there are often multiple failed rallies until the ultimate low is hit. Extreme sentiment levels signal bottoms, but not always “The Bottom.” They are part of the process and, as such, should be taken into account along with other factors.³

The Numbers  

At the end of September, the TSX was off -2.21% for the quarter and -13.09% for the year. The S&P 500 was off -6.27% (-24.77% YTD) and Nasdaq was down -4.96% (-32.40% year to date.). Gold is still not acting as an inflation hedge and is now down -8.4% for the year, after dropping another -7.06% for the quarter. Oil held on to positive year-to-date results at 5.51%, roundtripping from the $130 levels back to the $70 levels. For the TSX, sectors with positive returns year to date remained the energy complex, fertilizers, diversified metals and consumer staples. Utilities were bumped out of the green as they most likely started to feel the competition from interest rates.¹

The U.S. dollar continued to benefit from higher rates and perceived stability, climbing 7.4% versus the Canadian dollar in the quarter. In times of turmoil, the U.S. dollar proves yet again to be the destination for capital from all over the globe.¹

Interest Rates

Savers are finally receiving something for their trouble, as yields, both short and long, have moved up. Although inflation is still printing in the 8%+ range as this is written, a bond or GIC in the 5% vicinity is available. The money that was printed over the past few years is now being taken into account. Thirty-year fixed mortgage rates  in the U.S. are now pushing 7%, and the cost of home ownership has gone up accordingly. In Canada, those with variable-rate mortgages will no doubt notice the effect of a doubling in the rates from the offerings of last year.¹

Central bankers have telegraphed their desire to stop inflation. They need to see a slowdown in the economy and the other signs of what was once defined as a recession. No doubt some of these metrics are now visible. The latest popular saying is “hopefully they don’t break something,” referring to the financial sector and the economy, in general. History has shown that it is pretty hard to stick a soft landing while combatting inflation form the current levels.

What ducks have to line up for a positive shift going forward? First, and most likely foremost, is a change in tone from central banks from hawkish to dovish. Recently we have heard that other birds like pigeons might be more appropriate. Many do think the Fed is …for the birds! A change in fiscal policy, a.k.a. responsible spending, could perhaps also help. Of course, the end to a war and an overall improvement in the current geopolitical situation would be of assistance, as well.

Will the banks lighten up on the brakes? It will happen (we just don’t know when), but when it does the markets will react and, again with history as a guide, it should be positive.

From the Darkness Arises…  

The above chart, courtesy of Goldman Sachs, provides some light at the end of the tunnel. It puts the current environment into perspective. Throughout history, bear markets are followed by bull markets, and the cycle goes on as long as there are financial markets and humans interacting with them. The current declines set us up for future advances, although no one can predict the timing of the upward trend.

Dislocations and disruptions in the present provide the opportunities of the future. This movie has been played before and many of us have witnessed the previous renditions, lived through them and prospered.

As always, if you have any questions or concerns feel free to contact us.

All the best!

 

1 Source for market data: Thomson Revinitiv, Bloomberg, Factset

2 Source: CREA and the London St Thomas Association of Realtors (LSTAR)

3 Source: Sentimentrader

Q2 2022

Q2 2022 is done. Good riddance!

Summer Doldrums would actually be nice

Most, if not all, of the key talking points of the first quarter carried over into Q2 and are still prevalent as this is written. Inflation numbers are still tracking 40 year highs and the “transitory” theme seems to have been forgotten for now.¹ The Ukraine situation carries on with no abatement and Europe is scrambling to secure energy for the upcoming colder seasons. New strains of Covid and Monkey Pox are trying to get some attention but at the moment the public has either had enough or simply doesn’t care to hear about it. Inflation, shortages and unrest are claiming some headline space of late. So far we seem to be insulated from this to some degree in North America. China is threatening more lockdowns and seems to have some banking problems. It seems folks can deposit but they can’t withdraw!

For the Quarter

As of quarter end, we experienced the worst start ever for the bond market as measured by the Bloomberg investment grade index.¹ Although some of us are long in the tooth and can recollect rates from the early 1980’s in the 20% range, the carnage is a result of the rate of change in rates and their acceleration from near zero to loftier levels…..like 3.5%. It’s not always the destination, it’s how you get there. On a positive note savers now are receiving rates they haven’t seen for a long time. GICs over 4% are now on the plate. As for equities, the S&P 500 experienced its worst first half of a year start since 1970.¹ That’s 50 years! This all translates into a subpar performance for most financial assets even in the tried and true “balanced portfolio”, many of which are experiencing double digit drawdowns. 

Sentiment is also by some measures at extremely negative levels, which has in the past been a very timely contrarian indicator. However, sometimes these readings can last for extended periods of time.

Commodities – one of the current mantras especially thrown about when it comes to oil and energy prices is “demand destruction”.¹ This can also be stated as “the cure for high prices is even higher prices”. Oil seems to be peaking but is this short term market related volatility while in fact according to IEA the global supply is down? It seems also that sanctions imposed against Russia for their black gold have only resulted in a change of their customer list. China and India are filling in the revenue hit from the departure of their western customers. Also in the energy sector, companies are a bit gun-shy as far as investing their capital. Look for more dividend increases and share buy backs. Recent research from Ninepoint Partners in Toronto claims that even at $70 US per barrel oil, the average Free Cash Flow yield for Canadian energy producers is 19%. Most will be debt free in less than 2 years and could go completely private if prices stick around the $90-100 level. We will see.

Dr. Copper – the metal that some observers state holds a PHD in economics has plummeted. If this is not a supply issue is demand about to fall off a cliff? We have an interesting situation currently with negative GDP for the first quarter in the US and most likely the same for the 2^nd quarter yet to be announced. This along with other metrics such as those coming from the Real Estate market and Business owners’ outlook point to at least a technical recession is at hand. Yet most small (and large) businesses are screaming for employees. Unemployment rates have not moved up.²

The Numbers  

For the quarter end of March, the TSX was down -14.60% and -11.13 for the year. The S&P 500 off -16.53% (-19.74% YTD) and Nasdaq down -23.43 (-28.87 YTD). Gold is NOT acting as the inflation hedge as it is touted to be with a -6.49% performance for the quarter. It is off over 1% for the year. Oil still shows positive results +31% YTD after hitting over $130 USD a few months ago (start of the Ukraine conflict) the only positive sectors YTD on TSX were energy and the barely positive utilities at .43.¹

Recent hawkish comments and finally some action from the Fed in the US have caused a flow of funds into US$ and the Canadian dollar as a result has given up about 1.75 cents vs its’ US counterpart.¹  The US with all the problems that we constantly hear about is a rusty tanker but it is still the most seaworthy in the fleet when it comes to a hard currency.

Interest rates

As noted above, rates are moving up with the Fed and others for the most part initiating a tighter stance. We will see if the political will is there and if in fact there are many more rate increases to come. Will the Banks do a full on “Volker”? We have much different leadership than in prior periods. Time will tell what the reaction is. “Jawboning” or just talking about raising rates has definitely worked some of its intended magic so far in bringing down many asset prices closer to more realistic values. The question is will the central banks overreact?

As mentioned in our note from last quarter the second year of the US presidential cycle has some negative performance and this usually continues into the tail end of the year. A confluence of more political certainty, a tamer inflation setup and a friendlier central bank stance would bode well for the markets.  Just saying…

We still maintain our belief in sticking to our guns with an appropriate asset allocation. Out of bear markets come new bull markets. Bonds and other fixed income assets for the most part mature, equities in the longer term reflect the overall growth of the economy. Opportunities are emerging. As always if you have any questions or concerns feel free to contact us.

1 Source for market data: Thomson Revinitiv, Bloomberg

2 Source: Bloomberg, Institute for Supply Management PMI, FRED – Federal Reserve Economic Data St Louis Fed

Q1 2022

Now for Q2 2022

 

End of the beginning March 2022

Ukraine and Inflation take over spotlight from the pandemic now. For the past 2 years plus we have had the pandemic at the top of the news. No longer. Unfortunately, we are witnessing the horrific events taking place in the Ukraine. You don’t need to travel far from home to see the effects on prices, from homes to food to gas. Current Government numbers seem to reflect numbers that are different than what the actual consumer experiences. The war and sanctions against Russia bring into the spotlight the interconnectedness of national economies the world over. From grains to oil and gas, rare earth metals and the components of fertilizers the volatility of prices has been immense.¹

 

For the Quarter

By the end of March, the TSX was up by 3.1%, the S&P 500 off -4.9% and Nasdaq down -9.10%. Gold was up 5.6%, finally participating. In the energy sector, oil added 30.3% as West Texas Crude (WTI) hit 100+. Spot Natural Gas added another 50%  on top of last quarter’s 60% jump. We know the effect   just visiting the gas pump. Commodity prices in general have surged due to a few key factors: Money printing from central banks, supply chain constraints and now the Ukraine conflict. Oil surged at one point to over $130 US in early March.¹ Do you remember when it was actually negative for a few days in 2020? Now that is volatility!

 

The Canadian dollar picked up almost 1.35 cents versus the US dollar.¹ The resource sector is proving its worth for us in the FX markets. For those of us who remember prior periods, this environment sets up well currently for Canada as we are a resource producer. However, production of resources is finding more ESG opposition than ever and is not where it needs to be at least in the short term. We will see in the upcoming months what transpires as far as new exploration and development, if any at all.

 

Interest rates

One of the common terms bandied about in the media of late is the “Inverted Yield Curve” meaning shorter term bonds are yielding more than those of a longer maturity. Usually this is a description of the 2 year and 10 year maturities in the US. Whenever the short term is higher than the long it creates a negative number and hence the curve is inverted. Why all the fuss? It is supposed to be a predictor of a recession. Is it accurate? Accurate yes, it has got every recent recession right but also prognosticated many more that didn’t take place! History shows that the curve needs to be inverted for a good period of time and that also the recession may be 6-18 month out in the future. We will see what happens this time. Recent interest rate moves and a lot of talking from the Central bankers have already to some extent put a brake on some economic activity. The question also remains is there enough independence from politicians to manage rates? 

 

The second year of the US presidential cycle tends usually to be choppy for the markets as sometimes unpopular policies are brought forward. Some will become law and this year is no different. History points to more favourable conditions in the second half of the sophomore year of the US administration. We will see if this repeats. Hopefully the fighting in Ukraine  end and the Fed’s new stance will be fully digested sooner rather than later.

We believe as always that a well thought out asset allocation is one of the primary building blocks of investment strategy. As the markets move based on valuations and current events, sound principles will prove their worth. If you have any questions whatsoever let us know. With COVID restrictions mitigated we are happy to meet in person as well and look forward some “real” handshakes.      

***For those that hold our Global Equity ETF model please note that we have changed the amount of high risk allowed in this model from 20% to 15%.

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1 Source for market data: Thomson Revinitiv, Bloomberg

Q4 2021

Welcome to 2020 2.0!

The Ground Hog Day analogy is becoming old hat at this point. It might be better to use Yogi Berra’s famed line: “Deja vu all over again”.

Heading into the waning days of 2021 we found our latest nemesis to be Omicron and it looks like a French variant is also stirring as this is written. We have almost run out of letters in the Greek alphabet to name the variants.

For the Quarter

The TSX rose 1.9% and the S&P 500 5.0%. The Nasdaq gained 1.8% while was pretty much flat and down 3.5% for the year. Oil, the commodity that seems to be unloved added 8.5%  for the three months and 55% for the year. The Loonie was flat against the US dollar with a swing of less than a penny. Spot Natural Gas collapsed almost 40% on the futures market relieving some fears of immense heating bills this winter.¹ It is getting cold again though. We had mentioned previously that this is the sweet time of year seasonally for equities. Santa did show up for a rally but later than most had thought and preferred. 

Interest rates

The party for easy money seems to be coming to an end. At least that is what we are hearing constantly in the financial media. Will there be 3 or 4 rates hike this year? The 10-year US treasury floated back and forth between 1.25% and 1.75% with speculation of higher rates to be reflected in 2022.¹ We will find out. Is there enough political will to fight inflation with higher rates? The constant deflationary influence of technology is also playing out. Recent reports highlight a statistic called the “Quit Rate” or people leaving their jobs. The data here is a bit mixed for interpretation as it includes folks quitting to hold out for a better situation while others are setting up their own enterprises. According to the Economic Innovation Group, startup businesses surged to the highest level in decades. Covid has indeed made many rethink what is important to them and their families. 

As we enter 2022, we look forward to an end of lockdowns and restrictions. We are still moving forward with our review schedule and quarterly call. Hopefully we are back to normal this year. Wishing you and yours a safe and profitable New Year!

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1 Source for market data: Thomson Revinitiv, Bloomberg ,Yahoo Finance and Economic Innovation Group

Q3 2021

Into Q4 2021...

End of September

The pandemic continued and our election was still held. After the dust settled status quo was the outcome. Even though the Liberals did not successfully attain majority they will likely have sway to pass legislation for the first part of this parliament as the other parties will most likely not be in favour or prepared to fight another immediate election. More of the same is to be expected. Stateside the polarization continues with the massive $3.5 trillion infrastructure bill still the hot topic. The bill to keep the US from defaulting was just passed, extending operations until December. It will be interesting to see what is passed and the ramifications.

 

For the Quarter

The TSX declined by -.5% the S&P 500 dropped -.3% and Nasdaq in lockstep with the TSX -.5% Gold shed -1.3% and is now off over 7% for 2021. Lumber, copper and other metals backed off from elevated highs. Oil added to its’ gains tacking on another 2.1% closing over $75 for West Texas Intermediate (WTI). Natural Gas has been surging as of late as well jumping over 60% on the spot markets for the quarter.¹ Folks are starting to take note hoping this doesn’t translate into higher heating bills this winter. Almost all equity indexes were strong or holding up well into the last few weeks of September which has historically proven to not to be a kind month.

The Canuck buck gave up almost 3 cents to the US dollar.¹ The strength in Oil and gas being mitigated by weakness in some of the other commodities could have been a factor.

Interest rates

Of note is the correction in bonds. The U.S. 10-year bond got to 1.5%, revisiting a level it touched earlier this year.¹ Although this is not a large number, the speed of the change along with the percentage change has impacted long term bond prices negatively. The Fed is still dovish but signaling possible rate hikes coming our way in the new year.

They are walking a tightrope with too much printing leading to more inflation and too heavy a foot on the breaks could lead to problems. What might explain these yield changes? It is interesting that the "transitory" mantra describing inflation is not as common in discussions as of late. Recent reports are showing indicators hitting levels not seen in decades. The question to ponder is, if this is all from a rebound in activity from low pandemic levels or is it an overheated economy that demands higher interest rates to cool it down? And perhaps central banks are not acting aggressively enough to raise short term rates. Though they have conveyed that inflation, the language is still future oriented. Cooling the economy doesn't seem to be in the lexicon yet and perhaps the longer term  interest rate market is signaling a warning. 

We also observe that the Canadian 10-year bond is now yielding about the same as its U.S. counterpart, a dramatic change from recent years which had our domestic yields up to 0.50% lower than those in the U.S.? The jury is out. 

We head into the final chapter of 2021 maintaining our asset allocation mixes and at the same time keeping an observant eye on the current and potential issues in front of us. The start of the fourth quarter has been historically weak over the years, but it leads to what has proven to be a seasonally strong part of the calendar.    

Q2 2021

Are we open yet?

At the end of June, we are now entering the early stages of summer and with it hopefully some long sunny summer days ahead. No doubt some of us will be eager to get out and about shedding the extra inches and pounds also known as the “COVID 19”.

The staged reopening of the province is in place and a return to some semblance of our former normal routine is welcomed. It can’t come soon enough!

For the Quarter

The TSX advanced 7.8%, the S&P 500 rose 8.2% and Nasdaq up 9.48%. Gold rebounded 3.3% but is still down from the start of the year. OIL bounced up 23% and as this is written OPEC is still having a hard time agreeing to much of anything. Bitcoin and the crypto space lived up to their billing as “exciting”. Bitcoin dropped 39% for the quarter. Our Loonie went up 1.68c vs the USD.

Interest rates have not moved much, especially on the upside as many pundits have predicted. Commodity prices have been more volatile with oil’s move in the quarter and lumber (think plywood and 2X4s) rumbling about as well. The new buzzword of late has been “Transitory” which is Fedspeak for how the effect of inflation will be over the near to intermediate term. We will see if it is in fact transitory... It will be, until it isn’t.

Governments remain at full throttle in the spending department. Infrastructure and many other programs are on the docket. Although partisanship is not likely going away anytime soon, there is a desire to get things done. We will see the tab later. “It’s only Money!” As always, there will be winners and losers as a result of policy changes.

We head into the second half of 2021 optimistic and remaining on our current course. 

We also look forward to seeing you in person soon! All the best for the days ahead.

Q1 2021

The first quarter of 2021 brought us an anniversary although it’s one we would rather not celebrate. COVID-19 and the baggage associated has been around long enough. According to the Canadian Healthcare Network, the date of the first documented case in Canada was January 25th, 2020.

Market action for the quarter saw a gain in most of the indexes. TSX Composite up 7.2%, S&P + 5.8%, QQQ + 2.78% Dow Jones up 7.76%. Under the hood, a battle emerged that is still being fought with the “Stay at home” versus the “Reopening” trade. This is also to a great extent “Value vs Growth”. Many of the growth companies that surged higher are now consolidating their 2020 advances. 

There is much talk about the pulling forward of future trends into the mainstream by years if not a decade. One example is Telecommuting. Zoom anyone? Many of these companies had stellar runs in 2020. However, not to be left out of the party and aided by the rapid development of vaccines, the traditional participants in the economy have slowly been gaining ground. Many are close to (some above) pre-pandemic levels. People will and do want to move around, visit loved ones and go out for dinner. 

A recent scapegoat for market volatility has been the tick up in interest rates. The rise in the US 10-year treasury from mid-single digits to the recent high of 1.76% has given many a reason for pause. As we all know, most governments have opened the monetary floodgates as a response to anything COVID. This brings back memories of inflation and higher rates for all old enough to remember. At some point higher rates paid on fixed income become a competitor for equities. The current climate doesn't make it too appetizing to stray too far from our current allocations.

It’s interesting to note that with all the money printing, gold has moved down 9.26%. With bitcoin up 100%, it makes one take note. Is gold now the “Old man’s bitcoin”? No doubt some speculative money that would find a home in the precious metal has now changed its’ address to digital.

We await with anticipation for our first budget in two years from Ottawa. Will we see a reckoning for some of the recent spending? The consensus is …not yet. Rumors of increasing the capital gains inclusion rate seem to be the most popular, although in the future.

2021 is now well underway and we hope an end to the pandemic and all things related comes soon enough. A quote from Professor Richard Feynman comes to mind:

 

“Good days give happiness, bad days give experiences, worst days give lessons, and best days give memories”

 

As we enter the second quarter, we continue to wish you and yours all the best in health, safety and prosperity.

 

 

Q4 2020 

It’s over! Yes, 2020 has come to an end, finally. And yet, even though as this is written, now mid-January 2021, we are in another lockdown. If you have ever seen the movie Groundhog Day, it may seem that we are all reliving Bill Murray’s experience. 

The markets as they so often do, confounded expectations this past year. The fourth quarter of 2020 provided a strong finish with most major indices ending the year in the black. Highlights for the quarter were an advance of 8.97% for the TSX Composite (5.60% over 12 months), 12.15% for the S&P 500 (18.4% over 12 months) and 7.66% (44.99% over 12 months) for the NASDAQ. se numbers constitute a great year in normal times and a bewildering exceptional year in these COVID times.

The ongoing battle between value and growth styles of investing continued in 2020. Growth has been the focus for almost a decade now. A big question going into this year: will 2021 shift the style focus?

That the year ended on such a high note for all asset classes, notably our real estate as well, implies what? First, we all breathe a collective sigh of relief for the optimism shown in those assets. Imagine the devastation, economically and emotionally if we were coping with big losses in our wealth as well as the already devastating health effects of COVID? But should we be concerned? Is the market, always looking ahead, discounting an altogether too rosy picture? From our perspective, we are cautious about some valuations that seem stretched, particularly in the technology sectors that have benefitted from the stay home world into which we have been thrust. We continue to monitor and adjust holdings to gain some exposure to those ever-evolving growth themes. Our overriding concern, as always, is controlling the risk through allocation.

Einstein said “Plans are nothing. Planning is everything.” We all need a plan. With us our busines and livelihood is planning: translating the plan to action: execute and adjust for evolving realties. That’s why you retain us. We look forward to working with you in the coming years ahead.

Wishing you and yours all the best for a safe, healthy and happy 2021!

 

Q3 2020

The recovery in equity markets from Q2 rolled into June and kept the uptrend in play for the balance of the quarter. All major North American markets posted solid advances with the TSX up 3.9%, S&P 500 up 8.47% and NASDAQ up 11.02%. Both the S&P and NASDAQ hit all time daily closing highs in this period. 3580.84 and 12,056.44 respectively. Gold gained 5.30% and the Canadian dollar strengthened 1.3%. Given the news one would think we would have experienced something different.

Good performance continued to be displayed in the same sectors as Q2. E-commerce, Fintech and all things related to “stay at home” are front and center. The “run for the cure”, aka vaccine, continues and there are many players currently pursuing a viable option. Optimism with regards to a solution is definitely in the air as the current resolve to get a solution is penned as the Manhattan Project of this era.

As we move into October and November the news focus will change, not just to the weather but also to politics south of the border. From an investment standpoint there are always winners and losers given the administration in power. Its interesting to note as well that much research is in place confirming that markets actually perform substantially the same under either Democrat or Republican rule. Regardless, there will be some opportunities arising whether the incumbent stays or a change takes place. We believe maintaining a well thought out asset allocation is the best stance for now.     

As always we wish you and yours all the best. We are hoping the second wave of this COVID experience is done with before it has any affect on anyone especially those near and dear. Stay safe. Returns quotes are taken from Thomson One, period of Jul 01 to Sept 3^rd 2020 daily closing levels.       

Q2 2020 

The end of March saw what is hopefully the bottom of one of the quickest swoons in market history. By the first quarter’s end, March 31st, a decent recovery was under way. Over the next three months, the TSX regained about half of its decline. US markets fared much better with the S&P 500 within a few percentage points of its March 31st level and the Nasdaq reached new all-time highs breaching the 10,000 level.

There was, and remains, a disconnect between the markets and the real world. Economic numbers continue to come in reporting record levels of unemployment and wounded economy activity, yet the indices continue an upward march. There is, we assume, some truth to the old saying “it’s market of stocks”. The S&P 500 and the Nasdaq are, to a large extent, dominated by the FAANG stocks. Facebook, Amazon, Apple, Netflix and Google. Current approximate representation is 20% in the S&P 500 and almost 40% in the Nasdaq. Technology, Biotech and Precious metals have been on the leaderboard for most of the past few months.

Value has been taking a back seat to growth for most of the past few years but has been trying to exhibit some life lately.  Some of the better performers have been emerging from the “Stay at Home” and “COVID 19 Cure” trades. In times like this, new themes and leaders come to light. It’s also a time to stick to your allocation and discipline. An example follows.

In April Warren Buffett disposed of his airline holdings taking a substantial loss. The sector is a known cash incinerator when times get tough and Buffett never was a fan of the sector until the recent past. Ironically, Buffett from his 2007 letter to shareholders, is on the record stating “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” Times are certainly different. Or are they?   

Going into the third quarter, we have the balance of summer to enjoy and we hope it’s a GREAT one for all of us. On the horizon is the Presidential Election and all its related theatrics to watch. Our advice as always is to maintain your prescribed allocations and adjust as necessary. We are here if you have any questions or concerns. Our review schedule remains in place even though in person meetings are still somewhere over the horizon. 

The message for you remains the same - We wish you and yours all the best in these challenging times. As always is you have any questions or concerns please let us know.

Source for market data: Thompson One

 

 

Q1 2020 

2020 began with a continuation of the upward progress the markets garnered in 2019. The markets extended gains heading into the end of February with the TSX Composite reaching 17970.51 and the Dow Jones notching 29,568.51. It was full steam ahead until the Coronavirus and its implications showed up as the much ballyhooed catalyst for a market correction. The market seemed extended by many measures and had not suffered a major setback since late 2018.

This backdrop led to volatility and declines the speed of which had never really been seen by most market observers, amateur and professional alike. From peak to trough the TSX Dow both lost ground in the mid 30% range.

Central banks worldwide – notably the Fed- in the US, jumped into action turning on the printing presses to get even more liquidity into the system. March 23^rd saw the low for most equity markets and by the end of the month, most had experienced a sizable move off the bottom.

Our asset allocation stance has remained the same throughout this period as in times like this it is very easy to zig when one should zag. Timing is tough at the best of times (pardon the pun). There are emerging themes coming to the forefront such as “Work at home” and the search for a vaccine. Needless to say, many of the companies held in our portfolios are participating and adapting to evolving situation. We remain focused on the long term, realizing industries go in and out of favour. Our goal is involvement in companies who participate in the viable and growing parts of the economy.

While not as newsworthy at the moment, interest rates are still low and are predicted to stay that way for the foreseeable future. The yield curve remains flat so there is no real incentive to venture out too far. We are maintaining our positions here as well with portfolios predominantly in the short- and medium-term maturities.

We wish you and yours all the best in these challenging times. As always is you have any questions or concerns please let us know. Stay safe.

Source for market data: Thompson One.

Q4 2019

2019 provided a financial outcome that defied all predictions. Amidst all the headlines, and often questionable behaviour emanating around the world, stock markets rallied strongly. Final tallies according to Bloomberg were 22% for the S&P 500 in the U.S, 19% for the MSCI in the international market and a respectable 19% for our home grown TSX. This year was yet another confirmation of the adage that markets are truly unpredictable.

Interest rates briefly inverted this year, a reliable, but not infallible sign of imminent slowdown or recession. That fall in rates sent the price of long-term bonds up smartly, providing a total return of 6.87%.

The economic downturn didn’t occur. The outcome? U.S. shoppers spent within their means, and so consumer debt levels in the world’s biggest economy are lower than ever compared to the end of any previous upturn in the economic cycle. Employment statistics maintain their healthiest numbers in generations. Incomes made modest progress and inflation stayed subdued. We ended the year with one of the longest positive economic growth periods on record.

2020 brings forth a US election and among other things the aftermath of Brexit. We are certain these aren’t the only stories we will be reading and digesting in the next twelve months. As we don’t pretend to be prognosticators (no crystal balls here) our sooth saying is best served by referring to an old J.P. Morgan quote. Asked about market direction his reply was; “It will fluctuate.” Not being smug, our stance is to adhere to the Asset Allocation prescribed for our clients. It has served us all well.

As always if you have any questions or concerns please let us know.

Source for market data: Thompson One

Q3 2019

The third quarter saw major North American indices fluctuate modestly, leaving the Canadian stock market up 1.7%, and the U.S. Dow Jones up .75% . Other parts of the world didn’t fare as well. Tension in Hong Kong led that market into an 8.6% decline. European markets were also off slightly. (Source Bloomberg) 

Of interest, but under the radar of many observers, was a transition being made from growth investments that have lately dominated stock returns to value style companies outperforming in a few U.S. sectors. The jury is still out, but many companies, especially those with no or very small earnings and no dividends, had notable corrections. Whether this was just profit taking or a move to the more traditional, fundamentally tried and true names is yet to be seen. The healthy part of all of this is that new groups have assumed leadership such as the banks, home builders and some industrials. The events bring to mind words from the great investor Benjamin Graham: “In the short term the market is a voting machine. In the long term it’s a weighing machine.”    

Are we in a slow down or recession? The answer is being played out daily, but at the moment, in spite of all the tumultuous goings on: trade wars, cyberattacks, impeachment discussions, the markets march on without much disruption.

For the current quarter we maintained the strategic asset allocation for each client’s profile with a slight tactical bias to equities. We do think the attractive positive spread between dividend and interest bearing securities will continue to tilt our view in that direction.

Source for market data: Bloomberg

Q2 2019

Second quarter market activity added incrementally to the year to date returns of the Canadian, U.S. and world indices. All three experienced a correction mid quarter, Canada being the mildest. According to our quote source, Thomson One, the U.S. as represented by the S&P 500 and Dow Jones Industrial Average made declines of around 6% (6.13% and 6.09% respectively) before regaining a foothold and moving on to record highs. The bull market in stocks marches on, even in the summer doldrums.

We are astounded at the plunge in interest rates in the last half year. Within the G20 countries two have negative rates and six are currently at zero percent.  With rates seemingly heading even lower as the central bank in the U.S. possibly pivots away from its tightening stance, savers are having difficulty finding yield. This fall in rates might have suggested a major economic downturn or recession was in the wind.  Against the extraordinary good health of North American economies we think any downturn likely to be rather modest. In the meanwhile, dividends on shares offer attractive alternatives for yield, provided risk can be tolerated.

We are reticent to move too far away from the strategic asset allocation in place for each client’s profile, despite the lure of riskier alternatives. As we get deeper into the year, we will reassess. Our thinking is that some partial recovery in yields may occur.

We hope your summer is enjoyable and that you are well entertained but not too depressed by the political spectacles that continue to unfold.

As always, if you have any questions or concerns about your portfolio, please don’t hesitate to contact us.

Source for market data: Thompson One

Q1 2019

As 2018 closed with generally pessimistic news pervading world markets and economies, we were certainly not anticipating the events of this first quarter of 2019.

The markets came back from the previous quarter’s stumble with a vengeance. Canada and the U.S. are both up over 13% year to date.  Longer term interest rates, having just begun to show some recovery, reversed course and fell by a half percent.

With an economic slowdown in the works, this stock market rally might seem a mystery. However, markets tend to predict future events in current prices. And they are quite reliable when it comes to predicting economic recoveries. If 2018’s market downturn was a harbinger for slowdown or recession, the rally this quarter strongly suggests any slowdown will be modest and brief.

We are supported in this thinking by some encouraging statistics, largely emanating out the U.S. In a departure from past cycles, the consumer has not run up their debt levels in this recovery. Combined with a very healthy employment picture, the U.S. economy appears well positioned to extend this very long, modest and persistent economic expansion.

As always if you have any questions or concerns about your portfolio, please don’t hesitate to contact us.

Source for market data: Thompson One