July 2023 Newsletter

 

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

 

Planning Tip

Even though Canada does not have estate tax, individuals with registered accounts can face an enormous tax bill. On the death of a single individual, all assets are deemed to be sold. In the cash of an individual with a sizeable RRSP/RRIF, the complete value of the RRSP/RRIF is considered income in the year they die. If you have an RRSP over $500,000, over 40% of that value is going to taxes!

Instead of taking out the minimum RRIF payment, it might be a better idea to take out a larger amount than you need to avoid the large tax on your estate. A detailed financial plan is one of the ways that you can see if this works for you.

 

 

If you are wondering if Financial Planning would be an asset to you and your portfolio, head over to our Financial 15 Podcast page to listen to our newest episode: Financial Planning Pt. 1

 

Photo Contest Winner!

Our winner was chosen and here is the wonderful photo shared! 

We saw beautiful pictures of landscapes, fruit trees in your yards, favorite vacation spots and your pets! 

Stay tuned next month for our next submission contest - and keep those beautiful shots coming for a chance to win a $100 gift card to a local restaurant! 

 

 

Our Portfolio

We hope you've all been enjoying our podcast episodes. Stay tuned over the summer as we continue our Financial Planning Series with Sean Harding.

 

The markets rebounded in June and no trades were performed in the accounts.

 

Returns on our 60/40, 70/30 and 80/20 portfolios before fees:

 

 

 

Interesting Charts

I'd like to point out that "Work" doesn't even make the cut in these charts 

 

 

No wonder citizenship can be so hard to get in many western European countries - all of us working stiffs would flock over by the masses for those hours!

 

 

The Canada Mortgage and Housing Corporation have said high home prices are to blame for Canadian's ballooning debt - and the amount owed by Canadian households is also higher than the entire country's GDP. (https://www.bbc.com/news/world-us-canada-65688460 <--- click here to read more from this BBC article)

 

 

 

Technical Comments

https://www.brookstradingcourse.com/price-action-trading-blog/

• The June S&P 500 candlestick was a big bull bar closing near its high.

• Last month, we said that odds slightly favor the market to be in the sideways to up phase in the first part of June and if June is a big bull bar closing near its high and above August’s high, it will increase the odds of a retest near the all-time high.

• The June candlestick was a big bull bar closing near its high and above the August high.

• The bulls managed to create consecutive bull bars closing near their highs and above the 20-month exponential moving average.

• Looking back, whenever the market has consecutive bull bars closing above the 20-month exponential moving average (March & April), it has often led to at least slightly higher prices.

• So far, the market has continued higher in June.

• The move up since March is also in a tight bull channel. That means strong bulls.

• The bulls want another strong leg up from a double bottom bull flag (Dec 22 and Mar 13), completing the wedge pattern with the first 2 legs being December 13 and February 2 highs. The third leg up is currently underway.

• The next target for the bulls is the March 2022 high. They need to create a follow-through bull bar following the breakout above the August high to increase the odds of higher prices.

• The bears see the move down from January 2022 as a broad bear channel.

• They want a failed breakout above the August high and a reversal down from a double top bear (August) and a trend channel line overshoot.

• The problem with the bear’s case is that they have not been able to create strong selling pressure (bear bars with follow-through selling).

• As June is a bull bar closing near its high and Monday is the first trading day of the month, the S&P 500  may gap up on the Monthly, Weekly and Daily charts. Small gaps usually close early.

• For now, odds slightly favor July to trade at least a little higher.

• Traders will see if the bulls can create another follow-through bull bar or will the S&P 500 trade slightly higher but close with a bear body or a long tail above.

 

Big Picture

A Bullish Perspective from Brian Belski

 

Needless to say, 1H market performance has been quite impressive (~14%), and we would expect the momentum to persist during 2H, albeit at a slower pace judging by our 4,550 year-end S&P 500 price target. From our perspective, all the worries that damaged 2022 market performance are slowly beginning to subside (inflation/Fed). Yes, earnings growth is likely to remain a sticking point, but we believe investors fully understand this and are looking past 2023 results and expecting growth to re-accelerate in 2024 and beyond. In addition, we believe seasonality provides another tailwind as the S&P 500 has never posted a 2H loss

following such a strong 1H, post WWII. The bogeyman of narrow market breadth has started to broaden out and is a trend we expect will continue. Selectivity will be key, as will owning a “little bit of everything,” but we are still tilted toward value and SMID-cap in our size and style preferences.

 

Main Points:

· The Path to Our S&P 500 2023 Year-End Price Target

ü Further gains are likely, but pace should slow alongside a bumpy path

 

· Strong Price Returns During First Half of Calendar Year Typically Lead to Further Market Gains in Second Half

ü S&P 500 gains an average of 11% during 2H when 1H gains range between 10%-15%

· Corporate Earnings Remain Resilient

ü 2Q23 is likely to represent the EPS growth trough with a strong acceleration              expected in 2H

 

· Sector Review and Outlook

ü Communication Services and Technology remain top picks with Financials as our contrarian value play

 

· Lean Toward Value, but Also Incorporate Growth

ü Value appears extremely oversold while growth is expensive vs. its earnings outlook

 

· SMID-Caps Showing Signs of Life With Relative Valuations Versus Large Caps Still Near 20-Year Lows

ü Steep relative valuation discounts and improved revision trends should benefit SMID

 

A Counter View

A lot of what the Federal Reserve (Fed) is trying to do is slow the economy down enough so they can get inflation under control, but it is not working. Last week, we got the third revision to Q1 GDP and it was revised up. It printed at 2% against potential GDP growth of 1.8%. That suggests what the Fed is doing is not working as well as they thought, which is something we have talked about before.

 

That is important because if the Fed is behind the curve and inflation remains elevated, that helps extend the cycle. In this tightening cycle, Fed funds have only just climbed above the core PCE deflator. Looked at the chart below and note how high and how long funds (blue dots) need to stay above inflation (orange line) to knocked down the price pressures.

Unfortunately, historically, inflation stays sticky until unemployment rises sharply. In order to get unit labour costs, an intern, core inflation down to 2% the jobless rate needs to rise roughly 250 basis points. That would make it toward 5 ½% to 6% for this cycle -- an obvious painful path. But even more painful would be for inflation to become ingrained ala 1970s, when the real median family income was destroyed. The only failed soft landing (late 1960s) was caused by the Fed easing too soon, after employment rose to just 4% setting stage for the 1970 recession and that decade’s engrained inflation.

Being behind the curve, creates an environment that is ok for stocks particularly relative to bonds. The question then becomes how long it will take for the Fed to get ahead of the curve because that shift from one or two steps behind the curve to ahead of the curve will be the time recession will be on the immediate horizon. That will be the time one wants to switch from long stocks and short bonds to long bonds, and short stocks, but we are not there yet, and the question is will we get there?

Millennial Minute

Ashley takes a break this month, but will be back next month with another article to share with your kids, grandkids, and anyone who may need an extra boost to their budgeting and financial knowledge.

Does Your Wealth Plan Need a Tune Up?

There's not a single person who can't benefit from making a few tweaks in their life. Whether it's a meditation expert sharing their knowledge on how to de-stress, or a tip from a golf pro to help correct a swing - making some small, or even larger adjustments can go a long way. It's the same for financial issues! A little more saved here, an asset allocation change there - could help ensure you're doing the most with your money. 

Take a look at this article from BMO Private Wealth and give us a call if you feel you could use a little tune up in your own plan - or you'd like to start your plan with our Wealth Planning Professionals!