February 2021 - Monthly Update
Trust this note finds you well and enjoying the first signs of Spring.
Your portfolio gained / was break even (no gain no loss) in February. You remain with positive performance over the last twelve months.
The trends that emerged with the arrival of vaccines in November remain in place through February and beyond.
Economies in Canada and the United States (U.S.) continue their respective paths of reopening, unemployment moves lower, actions to stimulate growth are accelerating, and long-term government interest rates climb higher (yet remain much closer to historic lows than anything else).
While the pace to each has varied, the direction is encouraging and as we had expected.
The U.S. economy is on track to set a new all-time high (size) later this year. Canada looks to follow in 2022.
Stock markets have been choppy while grinding higher - consistent with the larger trend in place for the last eleven months.
We expect the next cycle of economic growth to again be led by the U.S. and their world class collection of businesses.
Many of the prerequisites are in place to have this cycle last longer than average.
When it begins, we expect it will be driven/defined by the domestic and local. It reflects the shift in demand and decision individuals make following their experiences from the pandemic.
Couple of points from last week (already forgotten by the headlines yet key to future trends and investment conditions):
1) Central banks in Canada and the U.S. will not raise overnight interest rates from their current 0% until the unemployment rate returns to pre-pandemic levels
In the U.S., the Federal Reserve (Powell) and Treasury (Yellen) cited unemployment and the 9.9 million jobs below pre-pandemic as the number one area to address and heal before a change in policy would be justified. The job market, not inflation or the bond market, will foreshadow an increase in overnight rates. On a smaller scale, the same is true for Canada.
2) Vaccine distribution is influencing projections for economic growth in 2021 and beyond
The U.S. is now expected to grow by over +6% (up from +5%)
Canada by over +5% (up from +4%)
Europe by +4% (although some revisions call for high +3% due to distribution delays)
You remain in a strong position financially. Our strategy is sound and unchanged: Own a properly diversified portfolio of high quality investments aligned with the positive and enduring trends.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“After putting in a mixed performance in January, US stocks ended February up and climbed to multiple new highs... A number of the usual themes were back in focus during the month — fiscal stimulus expectations, vaccine rollout acceleration, improvement in COVID-19 trends, solid Q4 earnings period — providing fuel for the reopening trades, but rising interest rates grabbed most of the headlines as the US 10-year Treasury yield rose to its highest level in a year. This uptick in rates increased concerns among investors and sparked a market selloff in the final trading sessions of February, before clawing back some gains on [March 1st
]. With that said, we do not view the prospect of higher yields as a threat to the bull market, which remains alive and well, as our work shows that the S&P 500 historically has performed better during periods of rising rates… As such, we remain on bullish on US stocks… After a brief pause in January, the cyclical rally re-emerged in February with the S&P/TSX gaining ... Energy continued to rebound from depressed levels as oil prices surged back to the highest level since 2019. Overall, we continue to believe the cyclical areas are well positioned to outperform in the near term and the TSX will likely maintain positive momentum [in] 2021 [and] marking a new all-time high for the TSX. .” Portfolio Strategy – March 2020. BMO Capital Markets.
- Stocks in your portfolio that made a new 52 week high this past month: Kraft Heinz, JPMorgan*, Medtronic*, Microsoft*, Royal Bank*, S&P 500 Index, TD Bank*, Telus*
- Stocks in your portfolio that made a new 52 week low this past month: None
- The Loonie gained another half cent versus the US dollar to $0.785 (a three year high)
We wish you all our best,
Ian, Gab & Kaitlyn
* This specific security is covered under the research of BMO Capital Markets. For a full list of company specific disclosures keys please visit https://research-ca.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx
or ask your BMO Nesbitt Burns Investment Advisor for a copy.