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March 2021 Enewsletter

Posted on: March 11, 2021

It was precisely one year ago that equity markets first began to get seriously impacted by the spreading virus. Today, although the short-term economic outlook is positive, we certainly aren’t out of the woods and there are many opposing forces pulling at the market.
February had three very distinct phases; the first half of the month we saw consistent and notable growth in the markets, mid-month we experienced a minor pullback in the market, and the tail end of the month presented increased volatility which is not uncommon to see as the market anticipates month end reporting and expiring contracts.
Currently, we are at the bottom of the short term trading range which started mid-November, after the U.S. election. Since then, we have seen the market test the bottom of the trading range multiple times, but never fully breaking through. More recently market indicators suggest a broadening of the upward range and a potential flattening as we shift into a sideways market. We are watching volatility closely as it continues to shift above and then return to typical levels, and  once again the market is tested the bottom of the trading range.
We are currently in the Green Zone in our mid to long-term indicators and in the yellow zone with our short-term signal, but what matters is where this market is headed and the factors influencing the outcome. Without a catalyst, we expect this market to continue sideways or slightly upwards, but as you will see below there are many economic factors that we are watching and some changes that we have made to better position the portfolios.
Where we are headed and why
Vaccine supply and distribution has been a highly reported topic recently. It concerns the health and safety of individuals, but it also carries the forecast of our economies; the promise of relaxed restrictions, business re-openings, tourism, and more. Markets anticipate, typically 6 to 12 months out, so as more positive vaccine news is reported we will likely see an increase in markets. The reverse is also true, negative news will have a damaging impact. As the U.S. is one of the larger economies in the world and our closest economic partners, positive news south of the boarder, such as decreased case count and promising “vaccines for all US adults by end of May”, will have a positive ripple effect. Improved vaccine and economic forecasts for the U.S. is also likely to have a positive impact on the U.S. dollar.
Financial stimulus has been a central theme throughout this pandemic and one of the primary reasons that we have not seen an economic collapse or market crash, along with the explosion of e-commerce sales. Currently, attention is on the U.S. government as they are in the process of approving another significant distribution of financial aid. Democrats aim to have their $1.9 trillion covid-19 relief plan approved and signed by mid-March, up from the original $1.1 trillion. The house already approved a version of the legislation, but will likely have to make additional changes before the Senate approves ( This delay has been a contributor to lost momentum in the market and the recent sideways movement. The market has already started pricing in the impact of additional stimulus and going forward we will see market adjustments as the final amount and timeline is negotiated. Unlike positive vaccine news, increased stimulus is likely to have downward pressure on the U.S. dollar.
Government debt levels continue to rise and at some point, they must attempt to balance their budget. Once the economy has enough stability, we can expect to see interest rates increase. The Central Bank / FOMC, sets the overnight rate on government loans, which then flows through to all other financial intuitions and eventually to individuals.
Another factor enticing an increase in interest rates is the threat of inflation. An increase in consumer demand and spending is one cause of price inflation, as businesses see an opportunity to increase prices. However, when inflation tests the government’s target of 2%, we are likely to see interest rate increases to curb spending and protect consumer purchasing power. When interest rates increase there are a few primary impacts;
  1. The benefits of saving become more attractive and focus shifts away from spending, which can stall economic growth.
  2. With less disposable income being spent, the economy slows and inflation decrease which is positive.
  3. Individual’s debt costs more, which can create financial strain and the need to offload assets. 
  4. We see a drop in the fixed income market, especially investments with longer term fixed rates. These investments become less attractive, as the rates were established during a lower interest rate environment.
  5. Certain high-dividend-yielding stocks become less attractive, as the return on risk-free government bonds becomes more appealing. “Since 1990, the worst-performing sectors during a period of rising interest rates have been utilities, telecommunication services, and real estate investment trusts. On the other hand, the best performers during this period were information technology companies” (
The US 10-year treasury note yield has been creeping steadily upward for several months now, indicating increased confidence in the U.S. economy and perhaps increasing inflation expectations from rising commodity prices. As interest rate expectations increase, nervous investors typically shift money into short-term government bonds and the U.S. dollar for safety, which we are starting to see. On March 10th, the Bank of Canada will issues a press release announcing its decision for the overnight rate, together with a short explanation of the factors influencing the decision. While we are expecting interest rates to rise, we don’t expect a rate increase until the economy has more stability. 
There is a constant tug of war between with bulls and the bears, pushing the market up and pulling it down. With the next major round of financial stimulus and positive vaccine news, we are seeing the makings of even more economic recovery. However, with economic stability comes rising interest rates and inflation that create downward pressure. This is a perfect moment to remind us all that having a disciplined investment strategy to navigate the opposing forces is incredibly important.
Portfolio Update
We are in the Green Zone in our mid to long-term indicators and in the yellow zone with our short-term signal. We have made adjustments to gain exposure to the most favourable sectors and to reduce holdings in those that are weaker.
Currently the focus of the portfolio is on the top four sectors: Energy, Technology, Consumer Non-cyclical, and Industrials. We have reduced our exposure to materials and cyclical consumer goods, while avoiding utilities, telecommunication services, and real estate.
In addition, it is typical from a historical perspective that smaller sized companies (SmallCap) tend to do well in the later stages of an upward market and we have increased our positions accordingly, where we are seeing strength.
We have made adjustments to the fixed income portion of the portfolio. With the potential for rising interest rates, we have seen a shift in the fixed income market and downward pressure on those positions with longer duration. Therefore, we have proactively moved the portfolio’s fixed income holdings from investments with longer duration to those that are shorter. These changes will help to insulate the portfolio against the negative impacts of a rising interest rate environment.
From a technical perspective, the market is due for a pullback given the run up since the beginning of November. These past two weeks, we have seen the market flatten and potentially start to roll over, especially during this first week of March. Should the market break and hold below the bottom of the trading range you will see us increase cash in the portfolio. As a reminder, this trading range is our leading indicator and has been our first signal to go on defense.
The “bears” or sellers, are definitely getting stronger. Although we continue to watch for signals of a larger pullback, currently we have not seen any indications or catalyst. However, in the near term as of writing, we see more indications of a short-term pullback and we are raising some cash likely for a short period of time. As always, we continue to monitor closely, to follow our strategy, and to critically analyse where the market is heading.
Have a great weekend!
~ John, Kate & Megan

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John Ridd, PFP® CIM® FMA® FCSI® Vice President, Wealth Advisor & Portfolio Manager
Kate Murdoch, CIM® CFP® BCOMM Investment Advisor & Financial Planner
Megan Lisowski, PFP®   Investment Representative
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