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