April 2022 Update

Money is a tool. It's something that supports your life!

Spring is upon us and with it comes a possible rise in the interest rates. BMO expects the Bank of Canada to hike rates by 50 bps at the next two meetings in April and June and then 25 bps till they reach 2.5% in April 2023. It's an exciting time to be in the market, and we are here to advise every step of the way! Ashley takes a break from the Millennial Minute this month, but Stephen is here to share his views on the market directions and what's been going on in the portfolios. We hope you enjoy this month's blog!

Interesting Charts

1) When you look at the numbers adjusted for inflation... do the younger generation really want handouts? Or do they just want to be able to afford the world that was built for them?

 

https://cavemancircus.com/2022/04/04/a-damn-fine-collection-of-fascinating-photos-55/#more-116225

2) What has changed so drastically in three years to affect the Federal Funds Rate? The pandemic can only be the tip of the iceberg...



3) The gas prices we see today are affected by the energy sector and it's performance. 


Source: @MacroAlf on Twitter: March 8th, 2022


4) A lot goes into the creation of EV batteries, and though these numbers seem very scary, remember that perspective is key. The question to ask when seeing posts like these is: "As opposed to what?"

 

Twitter @BrianRoemmele - March 13 2022

Technical Comments

• The March monthly candlestick was a bull bar with a long tail above and below, closing in the upper half of the range. 

• We have said that in February a weak sell signal bar and selling below a weak sell signal bar at the bottom of a developing 8-month trading range is not an ideal sell setup. Odds are there will be buyers below. The bulls see the January – February selloff as a long-overdue pullback. They want a reversal higher from a micro wedge bull flag (December 3, January 24, February 24) or a double bottom bull flag with the May 2021 or June 2021 low and a retest of the trend extreme followed by a subsequent breakout to a new high.

• There is a 50% chance that the February 24 low will be the low of the year and March and April form a pair of consecutive months that is the most bullish of the year, and therefore the S&P 500 is entering a timeframe that has an upward bias. This remains true.

• While March closed as a bull bar and traded above February triggering the high 1 buy entry, it closed below February high and has a prominent tail above. It is not a very strong bull signal bar.

• Bulls want this to be the start of the re-test of the trend extreme followed by a breakout to a new high. The bulls will need to close April as another follow-through bar to increase the odds of testing the January high.

• Bears hope this is simply a pullback from the 2-months correction and want a reversal lower from a lower high or a double top with January high. The bears want a break below the February low followed by a measured move down to around 3600 based on the height of the 7-month trading range. However, since March has a good size bull body and a long tail below, it is a weak sell signal bar for a strong reversal down.

• The S&P 500 has been in a trading range for 8 months. Odds are that the trading range will continue rather than a strong breakout from either direction.

• The bull trend on the monthly chart has been very strong. Even if it sells off for a 10 to 20% correction, that would still only be a pullback on the monthly chart (even though it could be a bear trend on the daily chart) and not continue straight down into a bear trend. 

• The best the bears will probably get on the monthly chart is a trading range for many months to around a 20% correction down to the gap on the monthly chart below April 2021 low and around the 4,000 Big Round Number.

• For now, odds slightly favor sideways to up for a few weeks more.

 

What's Happening

Interest rates are set to rise! BMO expects the Bank of Canada to hike rates by 50 bps at the next two meetings in April and June and then 25 bps till they reach 2.5% in April 2023.  In the United States, BMO expects the same two 50 bps rate increases at the next two meetings followed up by 25 bps until settling into a 2.75% to 3.00% range by mid- next year.  With the increase in interest rates, bonds have performed very poorly year to date.  The BMO Aggregate Bond Index is down almost 8% year to date. This is much worse than the S&P 500.  The traditional 60/40 portfolio has actually performed, year to date, worse than the equity markest.  Bonds traditionally offer a hedge to portfolios when stocks fall. History shows that bonds are inversely correlated only during periods of low inflation.  The chart below shows in high inflation regimes bonds become positively correlate to the stock market.

The following chart show one of major reasons why protecting capital is so important. It illustrates that today’s equity valuations are stretched and interest rates are near generational lows while at the same time investors are facing a macro backdrop for the first half of 2022 that is not very friendly and which will likely feature a recalibration of asset prices to account for deceeration economic growth, high inflation readings and tightening monetary policy which unite to create pressures that might push interest rates higher and bond prices lower.  Not a buy and hold winning combination.

 

 

Can the secular bull market that began in 2009 keep going? This chart shows the 1949-68 and 1982 -2000 analogs overlaid against the real S7P 500 total return index (top), and its 10 year real CAGR(bottom).  We are now at the point where the 10 year rate of change decelerated.

 

 

The Portfolios

*Starting this month we will have monthly podcast discussing the markets and our Portolio*

March was a busy month in the portfolio as we did a rebalance in all portfolios.

We sold Magna and PPG industries and we took profits on Lundin Mining, TC Energy, Tourmaline Oil and Gas and Verizon.

We added to many postions this month bringing them up to a full weightings.

We initiated new positions in Gold bullion ETF, Digital Ocean, Nvidia, Trade Desk, Goldman Sachs Group Inc., Snap Inc., and Maxar Technologies Inc.

 

The following chart shows the volatility in our portfolios verse the indices. Our portfolio has less annual deviation than the indices and, more importantly, a maximum drawdown of 16% vs all the indices at or above 50%. Stated differently, the maximum you would have be down at anytime investing in our portfolios is 16% where you would have seen half of you investment disappear in the indices.

 

Returns on our 60/40, 70/30, and 80/20 portfolios before fees: As of April 8th, 2022

 

Millennial Minute

This month Ashley takes a break from the Millennial Minute this month. Come back next month to catch her Millennial viewpoint on the future of inter-generational households and the housing market.

 

Planning Topic

The 2022 Federal Budget has been released and has been aptly named "A Plan to Grow Our Economy and Make Life More Affordable". 

Take a moment to review the policies in our review of the budget plan.
Click here to read more!