Gale Wealth Advisors – January in Review Market Update

Welcome to the latest edition of our monthly market newsletter. Here is a snapshot of what’s been happening on the financial landscape and how it has impacted our investment decisions and your portfolios.  Following the Market Overview below, you will also find an update from our retired business partner Ryan Taves, written by the man himself!

Market Overview

After an up and down 2023 we had a pleasant “Santa Claus” rally in November and December, which took the markets to new highs. Stocks and bonds continued their positive correlation as both asset classes saw significant returns in 2023, with the rally continuing into the first week of January. The sentiment that fueled the rally was the potential “Goldilocks” economic scenario where inflation is under control, a major recession is avoided, and the US Fed and Bank of Canada can start to lower interest rates. 

Earnings season is ramping up, but central banks continue to influence markets globally. Here at home, the Bank of Canada (BoC) left its policy rate unchanged for the fourth consecutive meeting on Wednesday. That outcome was no surprise to markets, but what did stir up investor attention was a subtle pivot in the BoC’s official statement, which removed the reference of the potential need for further rate hikes. Notwithstanding the BoC’s valid concerns around the persistence of core inflation, it’s fair to say they are now forecasting a pause in interest rate hikes with a leaning towards future cuts, barring any major changes to material economic data. The decision is sound in our view given policy tightening to date is clearly impacting consumers and the economy at large, evidenced by our recent sluggish GDP growth, particularly on a per capita basis.  

The BoC’s rate decision was accompanied by an updated Monetary Policy Report (MPR) which noted the economy is now operating in modest excess supply. To that point, its 2024 GDP forecast was downgraded a tick to a lackluster 0.8% (from 1.0% in 2023). The critical question looking ahead (and Governor Macklem said as much) is how long to keep rates where they are. The market is currently pricing in the first rate cut to come in early spring and as we’ve noted before, that looks too aggressive. Key components of underlying inflationary pressures are still running hot as wage growth is hovering uncomfortably at 4%-5% while shelter inflation remains elevated near 7%. The latter is particularly problematic and requires coordination between monetary and fiscal policy, but structural issues affecting housing supply are without quick solutions.  

As the US kicks off 2023 year-end financial reporting, equity markets decidedly struck a cautiously optimistic tone. Even disappointing results and sluggish guidance from Tesla couldn’t derail the S&P 500 from hitting yet another all-time record high this month. Interestingly, with Tesla’s share price drop this week, they unofficially dropped out of the Magnificent 7 largest companies in the S&P 500, displaced by Warren Buffet’s financial conglomerate Berkshire Hathaway.  

With global growth green shoots beginning to sprout, an extremely attractive backdrop is set for the cyclical heavy S&P/TSX to make a catch-up. The Canadian benchmark is now trading at the widest discount to the S&P 500 this century, and we could be poised for a well-timed reversion to each indices’ long-term mean. The case for Canada is even further bolstered by crude oil prices finally catching a bid into the mid US$70’s per barrel and the discount for Canadian oil narrowing in anticipation of the much-maligned TMX pipeline finally starting line fill next month.  

We are paying attention to the tensions in the Middle East and are predominately focused on the conflicts that are happening in the Red Sea. This is a major shipping hub and as we saw with Covid, the global supply chain can be very fragile and highly dependent on these vital shipping areas. This could also have an impact on oil prices, which could have implications on getting inflation down.

 We remain steadfast in our approach to own high quality, dividend growing, durable businesses that are best in class and have a long track record of success. There will be some turbulence along the way but we are staying committed to not being thrown off course because of short term sentiment. We think that it makes sense to have fixed income (bonds) in the portfolio as yields are relatively high and it seems that most central banks will be cutting rates in the next twelve months which will be particularly good for bonds.  

While there are no free lunches in the investment world, we believe that our portfolios are set up to take advantage of the potential upcoming rate cuts and are happy to be paid to wait until those happen.  

Lastly, we have the US election looming among many other developed nations going through the same election cycle, which brings with it a modicum of concern for many investors. If history’s any guide the chaotic nature of a US election brings with it a two-part mini-series when it comes to how the year will shake out for the markets. Traditionally, the first 4-6 months of an election year bring a lot of mudslinging and finger pointing which can have some negative impact on the markets as cracks are exposed and skeletons uncovered, but that’s just part one. Conventionally, part two or the latter part of the year brings a bit more calm to the markets as the political favorites are revealed and the barrage of promises from candidates looking to win voter favour are bandied about with promises of new jobs and economic stability under the newly or re-elected party.

All of this noise doesn’t really change anything we do; in fact, it reaffirms that our calm and process-driven nature of how we manage our clients’ wealth is even more important during these times. You’ll continue to hear from us on a regular basis to answer all of your questions and hopefully provide you that same sense of calm. As always, we are more than happy to be available for you and your families.

An Update From Ryan Taves

Hello Everyone!

 Jamie suggested I should send along a quick note to update you on how our family is doing. 

 2023 was a year of uncertainty and change for us!  In a way, it was fortunate timing for Melody to “retire” from work when she did as her 93-year-old mother is requiring greater and more frequent assistance and attention.  Also, Melody has been a strong partner and chief encourager on this new journey I am on. 

Our oldest son Alaric finished his law degree and is now a lawyer in New York.  He loves the big city and enjoys the challenges of his legal career.  Our second oldest, Quinlan, is in a leadership position with a local IT company and is well respected for his ability to problem solve often with his great sense of humour firmly intact.  Our third son, Everett, is working long hours in the Victoria construction industry and has a firm goal for an ownership stake in the company he works for.  Our fourth son, Gabriel, is in a Computer Science degree program at the University of Victoria and has a strong interest in the philosophy of Artificial Intelligence.  Our youngest, Xavier, is enjoying freelance construction work in the Victoria area which is a niche that is providing lots of opportunity.  He has a reputation for hard work. 

With the difficulties of qualifying for travel medical insurance and while I have been under the ongoing care of the medical system it has been difficult for us to travel as much as we had hoped, although we have been able to spend some time with extended family in Alberta and Florida.   Fortunately, it is not too much of a hardship to be stuck in Victoria! 

 After what seems like dozens of tests, consultations, and advice from multiple medical disciplines my recently discovered cardiovascular condition seems to be moving towards stability, although I am operating at a greatly reduced capacity.  While there is currently no cure, I am grateful that the medications I have been prescribed are beginning to help mitigate further risks, although the side effects have been a significant challenge.  There are some promising treatments in early trials in the U.S., but that process will take many years before they become available in Canada.  I appreciate the excellent medical care I have received and continue to receive.  And so, like all of you, I take one day at a time!

While I have not always been up to responding to clients that have reached out to say hello and wish me well, I wanted to acknowledge each of you and to let you know that the team passes those messages to me.  Those messages seem to arrive just at a time of challenge and discouragement and are very much appreciated – thank you! 

 Finally, we do stay connected with the team at Wood Gundy and I can’t begin to tell you how grateful I am for how Jamie, Jane, and Sheila (and now Daniel) have stepped up in real, tangible ways to serve and assist all of you!  The very nature of the financial advice profession tends to create real and lasting bonds between advisor and client and knowing how well Jamie and the team are looking after each of you gives me peace of mind to focus on my health.

I remain optimistic about the future!

Ryan

Upcoming Calendar of Events

February 15th: We will be hosting an Estate Planning seminar with lawyer Bhavi Tathgar at the Amica Beechwood in Sidney at 2 pm. We will cover all aspects of estate planning, including Power of Attorney (POAs), beneficiaries, wills, trusts, and joint ownerships. 

Please let us know if you or a guest would like to attend. 

February 19th: Family Day. Our office will be closed. 

February 29th: Thanks to this being a leap year, the last day to make RRSP contribution for 2023 is

February 29th. Every year there are always one or two individuals who wait until the last minute to make the contribution. If you are thinking about making a contribution please let us know ahead of time to avoid any potential issues the day of. 

March:  Date TBA: We will be hosting a Cyber Security webinar. Date and details will follow. 

Past Webinars:

At our recent exclusive Private Wealth webcast, global thought leader Admiral James Stavridis provided a view of what is on the horizon for the political landscape and what impact it will have, and CIBC Deputy Chief Economist Benjamin Tal discussed what we can expect from the economy in 2024. 

If you were able to join, I hope you gained valuable insights on the upcoming year. In case you missed it, a replay of the webcast is available for you to watch at your convenience. 

WATCH ON DEMAND 

Disclosures and Disclaimers

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2024.

Yields/rates are as of September 29, 2023 and are subject to availability and change without notification. Minimum investment amounts may apply.

Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.