November Market Update 2023

• Interest rates stabilizing, Fed and BOC likely done
• Businesses are in good shape
• Consumer still spending, some cracks appearing
• Inflation falling
• Economy slowing but resilient
• Market recovering, time to position for rebound later in 2024

  The cracks that are starting to show up in Canadian consumers’ spending behavior and finances are expected to get gradually wider, as more households refinance mortgages at higher interest rates, and as the unemployment rate drifts higher. However, these cracks aren’t expected to turn into a chasm, in part due to the fact that households have already started to make some adjustments and aren’t spending excessively relative to pre-2020 norms. That also means that consumer spending doesn’t need to crater in order to bring inflation back to a 2% target. Indeed, very modest growth in household spending on average during the second half of 2023 and into 2024, would still likely be consistent with 2% inflation by the second half of next year.

 

CIBC Economics

 

 

 

A reliable indicator of market risk is BBB corporate bond spreads vs investment grade. The bond market is saying it is not worried about corporate defaults.

 

 

State Street’s Risk Appetite indicator shows institutional investors came in to November feeling nervous about the market, a classic contrarian indicator when looking for a good entry point.

 

 

 

Corporate profit margins in Q3 are back to levels in 2022, before rate hikes. Companies are reducing costs and are expanding profit margins.

 

 

 

 

Factset estimates of analysts earnings estimates for the next six quarters, showing strong earnings recovery in 2024.

 

 

 

 

Compared to previous market cycle lows, this recovery has been very weak.

 

 

The US 10 year treasury yield has been the key to understanding where the market is going, as rates fall, the market rallies.

 

 

Summary:

• We are now in the seasonally strongest period of the year (November to May). If earnings remain strong and rates stabilize, markets can rally from here.
• Concerns about a major recession appear over-done, economy is slowing (0.7/0.6)
• If inflation continues to fall, expect rate cuts by middle of next year, a boost for stocks and bonds
• Beginnings of a new bull market are forming, remember, the market goes up before the economy does.
• Barbell strategy works well here, large cap growth (technology), plus cycles and beaten down value names, interest sensitives (financials, utilities, industrials, transportation). Stay with quality large caps.
• Nvidia and Microsoft best for cloud computing and AI
• Amazon, SHOP and Costco best retailers going into best shopping season
• PANW best in class for cyber security
• Visa best in financials, CP Rail for transports
• EMA for yield, DHR for industrials, UNH in healthcare
• Fidelity Cdn Growth and Fidelity US Focused Stock
• Congress US Large Cap Equity Growth
• Bonds: Investment grade corporates, longer duration

 

Gordon Forsey Advisory Group:

 

Gordon Forsey P.Eng., MBA, CIM, FCSI

Portfolio Manager, Sr. Wealth Advisor

gordon.forsey@cibc.ca

Tel: 902-420-6203

 

Andreas Demone BBA

Client Associate

andeas.demone@cibc.com

Tel: 902-420-9624

 

Terri MacPhail

Client Associate

terri.macphail@cibc.ca

Tel: 902-420-8263

 

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