Q3 2024

Q3 2024 came for a visit and was better than expected and predicted.

 

2024 Third Quarter Economic Commentary

From a Canadian viewpoint, the quarter saw a decline in inflation as noted by government data. This was both in the headlines and in the core data. This sounds like a good ending for the story may be in place, however, one has to remember that some stories don’t end and overall prices are up substantially from a few years ago. Have you bought steak or butter lately? Both Fixed Income and Equity markets rendered strong absolute returns continuing the trend from the prior advances. The Fed looks so far to have deftly engineered a soft landing and the US dollar strength is making Canadian goods and services more competitive. The trend in rate cutting continues, albeit with the economy not looking as dire at the moment, further drops could be adding some gasoline to the fire.¹

 

Election

The US elections have taken place and been decided just prior to our writing this note. A clear decision was made without contest or confusion of the result. Leading up to the day of decision one could hear depending where you were situated:

 

     A Republican win will cause a market crash,

     A Democrat win will cause a crash,

     If it’s too close to call and there is controversy there will be a market crash.  

 

Well so far, NO market crash. It’s a good time to refer to a story about Warren Buffett from Benzinga. “Buffett acknowledged that politics tends to evoke stronger emotional responses that cloud rational judgement. He firmly advocates a nonpolitical stance, urging investors to base their decisions on objective analysis and sound investment principles.”²

 

As usual, the wise man from Omaha puts it all into perspective. His track record and experience in the investment arena over about eight decades, and MANY different political environments, back up his thoughts. There is also another descriptive adage for this – stick to your knitting. Maintaining a disciplined and consistent approach via diversification and exposure to core economic sectors in leading companies will get you to your destination. We start this process as always with a proper asset allocation. 

 

Much of this harkens back to a similar change of the guard with Ronald Reagan 44 yrs ago. A new era was to be ushered in and there was great hope for a new direction for prosperity in particular. Ideologies aside, the ensuing first two years were not stellar for investors. This was partly due to the changing of the guard, changing policies, and the war on inflation. Those of us who were around then remember 19.5% Canada Savings Bonds and mortgages approaching 20% from conventional sources - not “Vinny the Shark.” The resulting recession that followed was brutal. This was the last real inflation war. The market finally bottomed in the summer of 1982, then didn’t look back for quite some time. Current rates are nowhere near double digits and its doubtful we will be experiencing anything approaching the early “80s” numbers, but swift changes in policies can have consequences.

 

Plato on Democracy:

 

Democracy is a charming form of government, full of variety and disorder, and dispensing a form of equality to equals and unequals alike.³

 

Q: What to expect?            

A: Probably the Unexpected

 

Certain Sectors are often predicted to gain favour and hence prosper under different administrations, but then do the complete opposite. The latest example of things not working out as expected was the abysmal performance in the Solar Energy and Marijuana Sectors. Both were touted as being golden children of the current party in office. To put it simply, they are among the worst performers over the past few years. We will now see who shines and who is tarnished in the next go round. EVs? Defense? AI? Real Estate? Hmmm… just might be another reason to be diversified across sectors as it always is. Things aren’t always the way you see them nor do they always play out the way you want.

 

 

 

 

Another view on this is provided by Jurrien Timmer from Fidelity Investments  

 

“History shows us that years 1 and 2 of a Presidential cycle have tended to be below average, while years 3 and 4 are above average. For those cycles in which the mid-term year was down(as was the case in 2022), the market has recovered strongly in years 3 and 4, only to turn sideways in the subsequent year 1. We can see below just how perfect this cycle has been over the past few years, nailing the October 2022 low to the week, and rising ever since. But the cycle tends to peak at year-end at we will see if it turns sideways for 2025.”⁴

 

Capital Gains and Bare Trusts  

 

Earlier this year a new budget conveyed an increase in the capital gains inclusion rate. We have another instance of further complications arising especially for those with anything but the most simple holdings. More fun for the accountants!  This may be altered if there is a change at hand in Ottawa in 2025. 

 

The Bare Trust adventure has been put off as a concern until 2025. It looks like some sanity has prevailed here as those of us who have simple, well intended situations, should be alright in the end. Examples of such are joint accounts with aged parents, small percentage participation in the home ownership of our children, and small holdings for grandchildren. The frustrating part of this ordeal was the 11^th hour rescission of reporting this for the 2023 tax year. There will no doubt be  more to come on this in the near future. We have access to a few good articles on this. Please reach out to us if you would like more information.

Question: Why are there so many Bear problems in National Parks?                  

Answer: Park Ranger – “Because there is a significant overlap between the smartest bears and the dumbest humans”

The Numbers  

At  the end of September for quarter end the S&P/TSX was up 10% and 14.2% for the year. The S&P 500 advanced 5% for the period and year to date by 19.8%. The NASDAQ finished up 3% for Q3 and stood up 19.7% YTD. The advances in the markets began broadening out with more names and different sectors joining the new high lists. Small and Mid-Cap stocks for the most part have been underperforming relative to the big names.⁵ Things may be setting up for them. We will see.

Inflation, although declining, is still around as alluded to earlier, and remains in the 3% range. Gold moved up around 14% for the quarter and is now up 27.8% YTD. Oil retreated 16% and ended the quarter at $68.17 on the futures market. Given Inflationary and geopolitical pressures this was counter to many prognostications. The Canuck Buck was up 1.5 cents following the previous quarters drop of almost 2.5c vs the Greenback.⁵   

As we again head into uncharted waters, the song remains the same. Remain steadfast in combining a plan with the asset allocation derived from it. This will do its part in seeing us through the scenarios and challenges ahead. As always, if you have any questions or concerns, please let us know.

Thank you very much for your continuing confidence, support, and trust in our team. It truly is a privilege to serve you - our clients!

Some notes heading into the finale of 2024

We may be getting redundant with this, but we stress taking advantage of the First Home Savings Account (FHSA) plan. This should be looked at for all family members age 18 or older who have yet to purchase a home. Simply opening an account can yield a considerable benefit. It may also be a nice Christmas present! Contact us if you wish to learn more.                                       

Here’s hoping the remaining days and weeks of 2024 are prosperous and healthy for all!  

1 Haver Analytics, 1832 Asset Management

2 Mancini, J. Warren Buffett Urges Keeping Politics Out Of Investing: 'I Don't Believe In Imposing My Views on 370,000 Employees And A Million Shareholders. I'm Not Their Nanny.'. July 17, 2023. Accessed November 18, 2024. https://www.benzinga.com/news/23/07/33263205/warren-buffett-urges-keeping-politics-out-of-investing-i-dont-believe-in-imposing-my-views-on-370-00

3 Plato, Lane M. The Republic. 2nd ed. London: Penguin; 2007.

4 @TimmerFidelity Posted November 14, 2024. Accessed November 15, 2024. https://x.com/timmerfidelity/status/1857140192102224155?s=46&t=OW79NiHx8vD4IKDqUqFIOQ

5 Source for market data: Thomson Revinitiv, Bloomberg, Factset, Carson Research

“CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries, through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. 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.

Thomas Burnett, Thomas Okanski, and Andrew Dale are Investment Advisors with CIBC Wood Gundy in London. They and their clients may own securities mentioned in this column. The views of Thomas Burnett, Thomas Okanski and Andrew Dale do not necessarily reflect those of CIBC World Markets Inc.

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

Q2 2024

Q2 2024 is in the books and things are about to get even more interesting. Stay Tuned!

 

2024 Second Quarter Economic Commentary

From a Canadian viewpoint, the period displayed a mixed performance given the usual global uncertainties. The housing sector, a key component of the economy, is ticking along. There has been a good deal of worry about falling prices due to interest rates and a potential economic slowdown. So far, the market looks to be behaving in an orderly manner. As of the date this is written, the Bank of Canada has just dropped its benchmark rate for the second time this year, another 0.25% dropping the Bank Rate to 4.5%. So far, we are the only G7 country with more than one rate cut.     

In the US, The Federal Reserve policies are forecast to also become more accommodative in the coming months. According to a July 23 Reuters story:

 

“The Federal Reserve will cut interest rates just twice this year, in September and December, as resilient U.S. consumer demand warrants a cautious approach despite easing inflation, according to a growing majority of economists in a Reuters poll. Declining price pressures over the past few months and recent signs of labor market weakness gave several members of the policy-setting Federal Open Market Committee (FOMC) "greater confidence" inflation will return to the U.S. central bank's 2% goal without a significant economic slowdown.”¹

 

So… do you remember at the end of last year when the forecast was for 7 rate cuts by the FED in 2024?² So far none! Inflation is also at 3% according to the latest numbers from the Bureau of Labour statistics.³ For both nations, consumer spending remained strong; this is accredited to recent wage increases and pent-up demand from prior periods of economic slowdown.

                                                           

Of course, the headlines on the US Political front continue to bounce around like rogue atomic particles. In the past two weeks there has been a debate, an assassination attempt, the Republican Convention and the bowing out of one of the candidates. We are still digesting the news and the daily twists and turns. Market action has usually been favourable in election years and especially those years with an incumbent going for a second term.⁴ We now have the current president stepping aside, but his second in command looks to be stepping into the breach. She is, as of yet, not 100% confirmed to be the name on the ballot. These latest events have thrown precedents out the window. We also now have a second non-consecutive run by a former president. The democratic convention is set for early August and no doubt more news will be forthcoming.  

 

Hopefully we see democracy play out at its best.

“The best argument against democracy is a five-minute conversation with the average voter.” – Winston Churchill

The Numbers  

To quarter end the S&P/TSX was off -1.3% but remained up 5.0% for the year. The S&P 500 retreated -3.88% for the period and still remained up for the year by 15.6%. The NASDAQ finished up 8.26% for Q2 and up 20.3% YTD, right near all-time highs. There is a lot of commentary about concentration in the major US indices being swayed by the “Magnificent 7”. In fact this group of innovators accounts for a major part of the capitalization and returns of these weighted benchmarks. True diversification isn’t found in concentration.⁴

Inflation, still around as alluded to earlier, remains in the 3% range. Gold moved up 4.5% for the quarter and is now up 12.9% YTD. Inflation hedge? Maybe, let’s see. Oil is ahead 13.8% YTD while off almost -2% for the last three months.⁴ Our own Loonie is off almost 2.5c vs the Greenback with a fractional loss in the quarter of less than 1 cent.⁴   

There is much on the agenda to look forward to including proposed further rate cuts by many of the industrialized countries. All markets – financial, commodity and currency will adapt and adjust as they always do.

We advocate that combining the discipline of a well thought out plan, and the asset allocation derived from it, will do its part in seeing us through the scenarios and challenges ahead. As always, if you have any questions or concerns, please let us know.

We also thank you immensely for your continuing confidence, support, and trust in our team. It truly is a privilege to serve our clients!

Some notes for 2024

As the year progresses we reiterate our emphasis on using the TFSA for extra savings where possible. Also, for the younger set who haven’t purchased their first home yet, the First Home Savings Account (FHSA) plan should be a consideration. Feel free to contact us about these plans if you have any questions. We will also be mentioning them in future client reviews and day to day interactions.  

One last tip for your summer social events:

                                        

Wishing you and yours health and success for the remaining days of summer!

 

1 Ghosh, I. (2024, July 23). Fed to cut rates twice this year, with first move in September, economists say: Reuters poll. Reuters. https://www.reuters.com/markets/us/fed-cut-rates-twice-this-year-with-first-move-september-economists-say-2024-07-23/

2 Rechtshaffen, Ted. " Interest rate cuts will be the story of 2024 — what that means for mortgages and more." Financial Post, Dec 27, 2023

3 U.S. Bureau of Labor Statistics. (2024, July 11). Consumer Price Index – June 2024. Retrieved July 25, 2024

4 Source for market data: Thomson Revinitiv, Bloomberg, Factset, Carson Research

 

Q1 2024

Q1 2024 is finished and now many events, most of them notable, are coming to center stage.

 

2024 First 90 days and into the “thick of it”

US Politics is progressing so far as expected with the two front runners apparently already decided on for both major parties. Their respective conventions have yet to take place and, barring some major health issue, which is possible with octogenarians, other events such as court battles may sway things as well. There are also couple independents out there, who, if they run, could really shift some voters from either party. Although RFK is not Ross Perot, he could have a very similar effect, but to which other candidate does the advantage go? This will be interesting.

Yogi Berra-ism perfect for politics in 2024:

“I never said most of the things I said”

More on the Balanced Approach

Old faithful, aka the balanced mix, came back to earn its keep in 2023 and 2024 sees a more muted return on the fixed income side of the ledger.¹ Albeit, if rates don’t fluctuate too much, the mid 4-5% range is attainable across the yield curve. We have been extending terms where possible and practicable. With oil and commodities where they currently trade, a favorable light may just shine on Canada’s equity markets. If the world wants resource participation, they come here. Recent action in other metals might be an early signal.¹ One has to remember though, that Canada has less than 3% representation of the global stock markets. Hence, in most portfolios exposure is rarely at a maximum.

What’s coming?

From our last letter…

“Presidential years tend to skew positive in the second half of the year.”

All things being equal, we have had a good start to the year. So far, the wind has been at our backs. What could change this? Well to start, the insistence that interest rates are headed down with multiple cuts this year, and the “inflation is under control” mantra may both prove to be either early, flawed, or wrong. We could potentially be set up for a rug-pull. Do you remember when Charlie Brown was about to kick a field goal and just pre-impact Lucy yanked the ball? In a word, painful. If you have back problems you can relate.

At the start of the year there was much talk about the impending six or so rate cuts by the FED – so far none.² Recent CPI numbers as posted by the Bureau of Labour Statistics show a 0.4% tally for March 2024.³ This is not what discerning eyes want to see… Powell in recent speeches is talking back the number of cuts, and the economy might be a tad too strong for any movement at this time.

Another rule, seemingly unwritten, is that the FED does not alter rates after June or July in election years to keep up with the perception that they are unbiased and apolitical. Given recent history, all bets are off here.

The Numbers  

For the quarter ended March 31st, the S&P/TSX was up 5.8%. The S&P 500 advanced 10.3%. The NASDAQ continued up 9.8%. In general, the equity market continued their ramp off of the early November 2023 lows.¹ Depending on the prognosticator you listen to, the markets have followed through off lows from 2022 or 2023. Inflation, while sticky, is in the mid 3% range and may (most likely) have something to do with the rise in the price of the barbaric metal: GOLD. It’s up 7.5% YTD.¹ Gold is also finally up vs the US Dollar after making new highs versus practically every other world currency last year. It is now at 2,400 USD$ at time of writing.¹ As noted last quarter many gold shares are noticeably underperforming the commodity. Queries are out as to why, but the trend and reason highlighted last quarter are still front and center.¹ Among them, the cost of doing business such as labour, insurance, and nationalizations, are all definite reasons. We will see how they react in the next weeks and months. Oil ended the quarter at $83.00, up 16%.¹ In the currency arena the Canadian dollar declined 2.50% versus the US dollar.¹

We constantly and consistently advocate and remind that combining the discipline of a well thought out plan, and the asset allocation derived from it, will do its part in seeing us through the scenarios and challenges ahead. As always, if you have any question or concerns, please let us know.

We also would like to thank you for your continuing confidence and trust in our team. It truly is a privilege serve our clients!  

 

Some notes for 2024

Tax time for most should be over by the time this reaches you. Don’t hesitate though to reach out if you need any further form/slips or other documents. As mentioned previously the annual TFSA contribution limit is now $7,000, and lifetime $95,000 if you have been eligible since the inception of the program. (Age 18 or over from 2009 onward). This is definitely a program to take advantage of if you aren’t already.

The First Home Savings Account (FHSA) plan also needs a serious look for any of you young adults out there. Combing tax-free growth and deductions, it should be front and center for our younger clients and the children and grandchildren of our more “mature” clients as well. With an $8,000 annual contribution and $40,000 lifetime limit, some serious downpayment money can be accumulated.

Wishing you and yours Health and Success for the next quarter!

1 Source for market data: Thomson Revinitiv, Bloomberg

2 Rechtshaffen, Ted. " Interest rate cuts will be the story of 2024 — what that means for mortgages and more." Financial Post, Dec 27, 2023

3 Bureau of Labor Statistics (BLS)

“CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries, through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. 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.

 

Thomas Burnett, Thomas Okanski, and Andrew Dale are Investment Advisors with CIBC Wood Gundy in London. They and their clients may own securities mentioned in this column. The views of Thomas Burnett, Thomas Okanski and Andrew Dale do not necessarily reflect those of CIBC World Markets Inc.

 

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

Q4 2023

Q4 2023 and the year are in the books and 2024 is going to be interesting on many fronts.

 

More than one Election to note in 2024…

There is always something to start the year off for the prognosticators. Well how about this? We already have heard about the big decisions to be made south of the border, but most don’t know that there are 64 nations heading for a vote in 2024. According to Time magazine this also represents approximately 49% of the world’s population. Time says it’s not just an election year, but it might be “The Election Year”.¹ As we write, it is looking like a possible re-match in the U.S. of the 2020 campaign all over again. We will see how this plays out. One thing is certain, each side has its’ pet causes and, as usual, some parts of the investment spectrum will benefit, and others will not.

We revisit, as in our last note, the US Presidential cycle and its effect on the market. See the below chart. We should note that looking back since 1928 there have been 24 elections with only 4 down years, the greatest swoon being Obama’s first term of -37%. Albeit that was in 2008 in the middle if the Great Financial Crisis.² Let’s see if the current year follows the script.

 

 

 

 

Bizarro © 2020 Bizarro Studios, Distributed by King Features Syndicate, Inc.

Follow up on the Balanced Approach

2022 was, as noted previously, dismal for the balanced portfolio approach. This was due to losing efforts coming from both Equities and most notably Fixed Income. There were many headlines spreading the message about the strategy’s ultimate demise. Fast forward to the end of 2023 and the world didn’t end! Both bonds and stocks put up positive results and the old Balanced approach worked again. All one has to do is study a bit about the Yin and Yang or Zig Zag theory. Without rambling too much here, what we mean is when something gets overdone too much in one direction the inevitable snap back takes place. This is what occurred last year. Hopefully we won’t see these extremes again for some time. It is also good to note that quality investments don’t stay down for ever.  

What’s coming?

2023 was “back-loaded”, meaning the returns, especially equities, were lumpy toward the end of the year.  In fact, for many equity only, and some balanced accounts, things were looking bleak into the middle of the final quarter. Most portfolios went positive in November and December. Presidential years tend to skew positive in the second half of the year.

As well, FED easing can accelerate market moves. At present we are hearing about multiple cuts during 2024. We learned long ago though, something about counting chickens before they were hatched. We will see. One thing though is certain we are seeing far better rates for the fixed income component of our portfolios and managed prudently, this is a welcome change from the sub 2% GIC environment we had to deal with only a short time ago. There are also a few new gizmos coming out in 2024, like the Apple Vision Pro.

The Numbers  

For the quarter ended of Dec 31st, the S&P/TSX was up 8.11% and up 11.83% for the year. The S&P 500 advanced 11.69% and +26.29% YTD. The NASDAQ went up 50.82% YTD on the backs of its 40%+ weighting in the “Magnificent 7”. The 2-year return isn’t quite as stellar but still respectable. It was down by almost a third in 2022. Gold was up 4.52% YTD.³ It is interesting how poorly most gold shares performed though. The commodity moves around but the cost of doing business goes up every year. It also doesn’t help when your mine is about to be nationalized or your project thrown into jeopardy like First Quantum Minerals is currently experiencing in Panama.³ Oil closed the year at $71.65 for the light Sweet Crude contract. This represents a loss of  -10.72% for the year and -21.08% for the final three months. There was a spike into the 3^rd quarter with some noise coming from OPEC.³ It didn’t last. We still have Macro and Geopolitical issues to contend with. All bets are off making any predictions here. On the currency front the Canuck buck appreciated 2.76% versus the Greenback for the year.³

As we reiterate, combining a well thought out plan, and asset allocation, we will get through what 2024 has to offer.  If you have any question or concerns, please let us know.

We also would like to thank you for your continuing confidence and trust in our team. It truly is a privilege serve our clients!

To note for 2024

TFSA contribution limit is now $7,000 lifetime and $95,000 if you have been eligible since the inception of the program. (Age 18 or over from 2009 onward)

RRSP deadline date for 2023 tax year contribution is February 29^th . Limits are set at:  2023 - $30,780 and  2024 - $31,560.

Tax information and packages will be out by early March. We can send directly to your CPA as well.

All the best!

 

Yours sincerely,

CIBC Wood Gundy

Burnett Okanski Dale Financial Group

1 Koh Ewe. "The Ultimate Election Year: All the Elections Around the World in 2024" Time, December 28, 2023

2 Source: Morgan Stanley

Source for market data: Thomson Revinitiv, Bloomberg

 

“CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries, through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. 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.

Thomas Burnett, Thomas Okanski and Andrew Dale are Investment Advisors with CIBC Wood Gundy in London. They and their clients may own securities mentioned in this column. The views of Thomas Burnett, Thomas Okanski and Andrew Dale do not necessarily reflect those of CIBC World Markets Inc.

GIC - For more information about this product, please contact your Investment Advisor.

Q3 2023

Q3 2023 has come and gone. Turbulence or calm ahead?

 

Bye Bye Summer – Hello Fall and Winter  

As we write this quarterly update, the Middle East has taken center stage. Markets so far have responded in the usual manner - a bit of volatility. Previous periods of conflict have actually resulted with positive returns for the most part. Next year also has the presidential election on the docket. Looking at the chart above, we are up to now moving in lockstep with the typical cycle. Let’s see if history yet again repeats.

 

For the Quarter ended Sept 30^th 2023

Bonds continued their dismal march downward. For the quarter, the iShares Canadian Universe Bond ETF, ticker XBB, was off 4.6%.¹ The US Aggregate Bond Index was down 3.2%.¹ We are now seeing GICs maturing in one through five years sporting 5% plus yields.¹ Last quarter we noted how some of us remember the good (BAD) old days of higher rates circa the late 70’s and early 80’s. The chart below shows that over a longer time frame rates in the 4 to 5% range are more the norm than the expectation.

 

The past couple years have been interesting when it comes to the posturing and communications of our central banks. The spigots opened with the onset of Covid and really just continued the easy money policies dating back to the Financial Crisis in 2007-2008. The message conveyed in 2021 was of no intention to even think about thinking about raising rates. Not too soon after, the greatest acceleration of rate increases on record was initiated. We are now hearing about higher rates being around for a longer period than initially proposed.  Will the message change again? Likely. Maybe we should consult our optometrists below for more clarity.

What does this all mean?

For the average investor a balanced approach has recently betrayed what it is supposed to do. Specifically, bonds are off and equities for the most part are ho-hum, unless you are almost solely in the right sector catching some momentum.¹ The two asset classes should have counteracted each other as they have for many years. Some positives are emerging though! With higher rates across the board, and after a decade or more waiting, we are able to generate some decent income. This comes from the from the truly “Fixed Income” portion of the portfolio. I.E. Bonds, T-Bills and GICs. To note: money market funds are for the most part in the high 4% range at time of writing.¹ Higher Dividend paying equities that are rate sensitive have sold off in some instances a considerable amount, and now offer juicy yields and much better upside potential than a short while ago. (Think Banks, Utilities and REITs).¹ If, and when, there is a slowdown, rates will head back lower sparking the next decline in yields and a move higher in valuations. The question as always is when, and there likely could be more consolidation ahead first. The long downtrend in rates arguably has bottomed and a valuation reset has either started or is well on its way. You get what you pay for.

Earnings, dividends, dividend growth, and valuation metrics as always are important. For growth investments, actual growth indicators have to be demonstrated and the skeptics will have an even closer eye on things. If the indexes languish, dividends and interest payments will carry the torch as they have in past cycles. It’s really a circular argument back to maintaining that balanced stance.

In a Nutshell

Stepping back and looking at all this from a distance: rates went up, bonds and equities went down. After an initial period of adjustment, fixed income is paying us more and equities will adapt as always with the better companies outperforming and rising to the top. With a well thought out asset allocation and plan, we will get through what we have seen to some extent before. Same movie, different actors.

The Numbers  

For the three months ended of Sept 30^th, the S&P/TSX was off -3.05% and up .60 for the year. The S&P 500 retreated -3.56% (+11.6% YTD) and NASDAQ off -4.09% (+26.90% YTD). To note the NASDAQ is basically up year to date the same amount it was down year to date at the same point in time. Gold at $1,848.10 is up 1.6% YTD. Oil is hovering at just over $90 and is up 13.2% year to date. The actual price at quarter end is $90.85, just about midpoint over the past few years, remembering the spike into the $130s USD at the start of the Ukraine war. The US$ versus Canada is virtually unchanged at +0.4% YTD.¹

 

As discussed above, we see more opportunity for taking advantage of the current situation, locking in higher rates and adding to some stalwart long term holdings. 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

Organization for Economic Co-operation and Development, Interest Rates: Long-Term Government Bond Yields: 10-Year: Main (Including Benchmark) for Canada [IRLTLT01CAM156N], retrieved from FRED, Federal Reserve Bank of St. Louis

Q2 2023

So now what?

June 30^th marked the end of the second quarter of 2023 and remarkably, the world is still revolving on its axis. It turns out that what was supposed to be next to a cataclysmic outcome for the economy and financial markets did not come to pass. Hedge funds, institutional investors, and a good portion of the retail crowd were positioned for extreme negative outcomes. As we have alluded to in previous communications, such negative posturing often is a precursor to an alternate experience. This can be witnessed in the actual numbers for the second quarter. Year to date equity markets such as the NASDAQ TSX and Dow Jones are all in the green. This is not what was expected.¹ It seems the seers got it wrong yet again.

Concerns still remain about mortgage renewals and the debt associated with them.

The news is that you actually wouldn't realize or notice this if you looked at the housing sector. Housing stocks in the United States as represented by XHB which is the ETF tracking the home builder sector has screamed upwards of 33% year to date.¹ Here in Canada, we seem to have a shortage of single family home construction. There is a multitude of cranes in metro areas working on multi-unit projects. It seems again what one would think to be logical isn't happening. How will both potential home buyers and current owners cope with upcoming mortgage renewals under the newer elevated rate structure? We know one solution, and have witnessed it on many occasions – parents are helping out!

For the Quarter

The TSX was like slow drying paint, advancing .275%, the S&P 500 jumped 8.29% and the NASDAQ was up 12.81%. Gold declined 2.83% and you would think with all the inflation talk it would have moved up! Oil fell 6.65% but has recovered most of that at the time of writing. The Canuck Buck appreciated almost 3 cents vs the Greenback.¹

“History is an agreed collection of lies written by the victors.” – Napoleon Bonaparte, Now AI is the official record keeper.”

— Brian Shannon, Alphatrends

Unless you have been under a rock and totally tuned out from all sources of media you have most likely heard at least one of the following: AI, Artificial Intelligence, Machine Learning or Chat GPT. This “new thing” is being touted as everything from the next bubble, the next generation of the internet, or the next hype job in progress. It’s most likely a combo of all of these. Evidence has started coming in though, that the adoption of AI in its’ various forms is adding to both the efficiency and profitability of business. This could be just the catalyst needed for equities to advance. Future earnings reports will definitely show if there is anything to this argument.

 

 

As we start the second half of 2023 things will play out as they always do.  

Wishing you and yours an enjoyable balance of the summer and best wishes for your health and happiness!  

All the best!

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

Q1 2023

It seems for the first quarter at least, what was despised in 2022 was loved a bit and what was loved didn’t get the same affection.

“Nothing endures but change”

– Heraclitus

 

For the first quarter the TSX was +3.69%, the S&P 500 +7.09% and the NASDAQ up 16.77%.¹

Drilling into the various sectors, last year we saw Oil and Gas as the “hot guy” and this year finds it down 5.57%. Financials were down 6.05% and Utilities down 4.04%. Last year's laggards, Communication Services and Infotech, were both up over 20% for the quarter. Actually, 20.18% and 21.49% respectively.¹

Taking a gander at the US market, Infotech was up 26.46%. Energy, although grinding about at present is down 3.6%. However, over a five-year period it is up almost 20%. It was also one of only two sectors to show any real positive movement last year.¹ Overall, there seems to be 180° flip occurring. Is this due to rebalancing, or just short covering, or is there something else going on?

On the commodity front, copper was up 7.43% and gold rose 6.89%. With all the tension it’s noteworthy to see Natural Gas down 37.05%; mild winter perhaps?¹

 

One of the root causes for last year’s volatility is most likely a payback of recent excesses caused by our generous central banks during the COVID war.  Many voices are calling for a “Sea Change” in the interest rate environment. For example, Howard Marks, a renowned investor, has noted in his recent memos and appearances that things are a bit different than 40 years ago at the beginning of the great rate decline.²

The current question becomes: is the Fed and other central banks closer to the end of the hiking cycle? Is there a greater secular move at hand? It seems Canada might be on pause and we will find out more from the Fed in the coming days and weeks. It is also worth noting that the Fed did inject a lot of liquidity a few weeks ago on the demise of Silicon Valley Bank. As this is written, First Republic is now on the chopping block. The Bank of England backed off a bit on tight money policy a little while ago as well.¹ Do the central bankers have the fortitude to continue with tight money? Are they living up to their supposed hero Paul Volcker?

On the equity front, when it comes to valuations, beauty is in the eye of the beholder. For example, the TSX composite index is basically hovering about the average price-to-book ratio it has had over the past 15 years. This is just shy of 1.8 times. The forward P/E Ratio is around 13, which is actually below the average number looking back over the same period.¹ The key factor here is those interest rates again. A year ago we were struggling to find clients yields over 1.5% on GICs. Now at the time of writing we are looking at the mid-fours.¹ Examining the following chart you will note the steep acceleration of rates courtesy of the Fed. The word “unprecedented” comes to mind.

Interest rates have been in a downtrend since about 1980. Has this flipped? What is worth noting is the acceleration and rates. One reason why last year's returns were so dismal. Notice the above chart from St. Louis Fed. Over the last year we have seen the highest acceleration of interest rates by the US Fed on record. Neither markets nor politics will go away. After years like 2022 many studies extrapolate that a favorable outcome should be expected if history is to repeat. It's hard to predict the future as we all know.

“People who make their living looking into crystal balls are destined to eat a lot of glass.”

– Larry R. Williams

The best defense and offense come from sticking to your plan and your strategic asset allocation. It's hard to tell what offers the best outcome if you are swayed by day to day noise.

“Never bet on the end of the world. It will only happen once. And when it does, you’re not getting paid.”

– Jim Bianco  

We have entered Q2 as well as spring. Hopefully the green shoots we are observing are not just from vegetation.

All the best!

***For those invested in the Balanced Growth mandate please be advised that the risk rating is changing from Medium-High to Medium.

 

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

2 Source: The Roundup: Top Takeaways From Oaktree’s Quarterly Letters - 4Q2022   

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%.

---

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!

---

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