We are pleased to be sending this e:Newsletter a week early given the Easter long weekend and because markets have been giving signs of a rotation, we felt an update sooner would be welcomed.
Note that by the time you receive this, all tax documents should be on their way or already in your mailbox. You can also download them from the BMO Nesbitt Burns Online Gateway. Should you require assistance or have any questions regarding missing any forms, or simply want to confirm your tax package requirements, please contact our team.
With tax filing due the end of April, and income requirements and expenses confirmed for the past year and fresh on the mind, we would like to invite those that are interested in starting or updating your planning to meet with us in the coming months. We are pleased to remind everyone that Victor is an excellent planning specialist as Charted Accountant by trade and a Chartered Financial Analyst, making him one of the best planners at our firm and exclusively available to clients of our team.
The question has come up from time to time as to my retirement plans. I would like to reiterate that it is not happening anytime soon – at least five to seven more years. I love what I am doing, I am fit and focused. Most importantly, we have a committed and great team for which we are only looking to expand.
Portfolios are fully invested as we are in the Green Zone in our long to mid term indicators and as markets continue to test the all-time highs. We are however seeing a change in Market leadership away from the Growth Stocks, and the Magnificent Seven, which were the darlings of the market for the past year. More on that in a moment. Our short term signals are also in the Green Zone, but bear watching.
As of writing, the Total Equity (100% stock) component of our main models is up almost 12.7% and up 12.2% in our mid size models. By comparison, the Cdn Market is up 5.24% (XIC-ca), the US markets (hedged to Canadian dollars) as measured by the Nasdaq (ZQQ-ca) is up 8.27%, the SP500 (ZUE-a) is up 9.43% and the Dow (ZDJ-ca) is up 5.17%.
Our Growth accounts are up 11.8% year to date and our mid-size Growth accounts are up 9.5%. The Balanced Portfolios are at 9.5% for both large and mid accounts. All figures are after fees. Should you have any questions regarding your accounts, holdings, performance and account mandate, please contact us.
We are currently outperforming after fees year to date, but we don’t want to focus on performance except to emphasize that markets have had a strong run. While we are pleased to have well participated, we see that markets are indeed potentially topping out and somewhat over extended. We did mention this as a possibility in last month’s letter as well, noting that we could see markets roll over, and or take a pause. We could also see a change in what has been leading the market.
For the past year and certainly from the bottom late last October, the Growth Stocks, particularly the Magnificent Seven (Meta Platforms, Apple, Amazon, Google, Microsoft, Nvidia, and Tesla), were leading the market higher. Since the beginning of this year, however, we have seen a number of changes.
For example, Apple. After hitting a new all time high in mid December, it has only declined since. “What was once the world’s largest company by market-cap has lost half a trillion dollars in value, in what feels like a split of a second. Boy that was fast. Half a Trilly. Gone. Just like that. So just to put things in perspective, for those of you who might not realize how much money that amounts to, there are only 13 companies on the planet worth over half a trillion dollars. Apple lost half a trillion in value in just a few months.” AllstarCharts
Just about everything we are looking at in the Growth sectors are off their highs. But that doesn’t mean the markets are breaking down.
The broad market indexes themselves are still holding close to their highs. That is because different segments of the market are now taking over. We are seeing a welcomed improvement in other sectors, including financials, industrials, materials, precious metals and even the small exposure we have to Bitcoin. Just because the Growth sector is not working as it had in the past year does not mean that this “bull” market is over. That said, we do have to watch that these other sectors hold as we are already taking the opportunity to roll into them.
We have moved into some of these sectors, adding gold, industrials, financials, a small position in bitcoin and some defensive positions until we get a full indication of where the market can move from here.
Last week, the U.S. central bank telegraphed that inflation continues to be stickier than anticipated, but it is coming down. As such, rates will probably be higher for longer, and instead of what was thought to be five rate cuts this year is now down to three or less. In Canada, BMO Economics is projecting a full percentage point by the year end as our economy is somewhat weaker than the U.S. (see the article: Reddit or Not, Here Come Rate Cuts (bmo.com) for more).
The U.S. bond market had been rising but has since settled down. That is important because if the “bond guys” are worried, we should be too. There is, however, no sign of that right now. They are telling us too that rates are likely coming down.
While the U.S. dollar had been rising -- not so good for stocks – we anticipate it to be only short term as it is looking simply a result of the fact that rates will not likely drop now until early summer rather than April as anticipated. As we get closer to that date, we should see the USD decline.
Markets initially liked all the news but, not surprisingly, have stalled a bit since. The first reason is that stocks are somewhat overbought after the run since the bottom of October. Secondly, because we are nearing the end of a quarter when institutions and pension funds do their typical rebalancing, it generally causes short term market gyrations. So far, this looks like a healthy pause with the welcome change in market leadership as discussed above. The broader the participants in the upside, the stronger the market. The important note is that rates will be coming down. That is good news for borrowers and not so much for those that have been enjoying the higher deposit rates of the last year. It is also good news for the market as it becomes less expensive for companies, particularly small to mid size companies and the backbone of the economy, to do business.
Inflation is slowly subsiding and with that, interest rates should come down and this bull market can potentially continue. It is also a U.S. election year and that is typically good for the markets. Any pullback would be healthy for the markets after such a good run. That said, we are also seeing a positive change of leadership in the market leaders and that could keep the over market indexes running higher. We are in the Green zone, fully invested and rotating assets as needed.
Should you have any questions or concerns or would like to get together in office or via conference or video call, please contact us anytime.
Have a great long weekend. For those that celebrate, Happy Easter!
- John, Victor and Megan