MONTHLY MARKET MUSINGS

August 2023

Staying Invested Always Wins In The Long Run

A Good Start To Second Quarter (Q2) Earnings Season

With the Q2 earnings kicking off a few weeks ago, many were eager to see how companies would fare. Thus far, 291 of the companies in the S&P 500 Index have reported. Of those, 240 have topped consensus estimates on earnings with the average earnings beat coming in 6.4%[1] higher than consensus forecasts. For the S&P/TSX Composite Index, 52 companies have reported and 30 have either beaten or were in line with consensus earnings estimates. Despite the beats and the assumption that consensus estimates may have reached trough levels in the current cycle and could grow heading into the back half of the year, share prices have not rallied much post-earnings. This suggests that quite a bit of pessimism remains and that the "most anticipated recession ever" is still occupying the minds of investors. With sentiment still cautious, the stage is set for a possible swing in momentum in the markets as economic data indicates a soft landing with inflation moving lower and unemployment stable.

Is It Time To Put Cash To Work Or Should I Wait?

Trying to time the market has been shown to be a futile pursuit that nearly always ends in worse performance. Meanwhile, staying fully invested over time produces larger returns and generally is a much simpler approach to portfolio management. In two separate studies[2], Bank of America Merrill Lynch showed that rather than trying to time the markets, investors fared much better staying invested through the peaks and troughs of the markets. Despite the empirical evidence, many attempt to do this nonetheless. Attempting to time the market can be compared to jumping off a boat when the water gets a little rough. It might feel like the right decision at the time but you aren't really getting any closer to your destination and before you know it, the sea has calmed and the boat is disappearing over the horizon without you. Many investors are currently facing this very decision as they have retreated to a larger cash holding over the past 12 months as interest rates were on the rise. While the risk/reward ratio for cash did look attractive over the past 12 months relative to equities, being sidelined with cash if the market enters a longer-term bullish trend can offset any of those inherent gains. So what is the takeaway for those sitting on cash? Put it to work in equities. Of course, there is a risk of a recession but the market and the economy will always face risks and this should not deter someone from being invested in equities. Focusing on high-grading equity portfolios by ensuring that the companies held are high-quality businesses that have proven track records of stable earnings is a good place to start and this is a core tenet of our approach. We continue to like equities at this stage and feel that there are many pockets of opportunity within both the U.S. and Canadian equity markets.   

JAY SMITH, CIM, FCSI

Senior Portfolio Manager & Senior Wealth Advisor

BRAD BROWN, MBA, CFA
Portfolio Manager & Associate Investment Advisor