September 2021 - Monthly Update
Ian Peebles - Sep 01, 2021
Trust this note finds you well and that you enjoyed an excellent summer.
Your portfolio made gains again in August. You remain with positive performance over the last twelve months.
The US economy has completed its recovery and has started a new cycle of growth (as measured by gross domestic product).
An average cycle of expansion runs just under four years - Approaching the year 2025. The most likely outcome is that it lasts as long or longer than average. It is not meaningful to try and predict the end of this cycle today - It has only just begun.
The Canadian economy will do fine - as the Americans go we will follow. That said, the U.S. will likely grow for longer than Canada. In fact, the Canadian economy shrank by 1% during the most recent quarter.
The path of higher overnight interest rates continues to be driven by unemployment and the job market. In the U.S., full employment means an unemployment rate that lands in the 3% range compared with the current 5%. It is looking like we will have another year to get there and another year after that before the Federal Reserve starts increasing rates from the current 0%.
The game plan for 2023/2024 is for the economy to shift from one being driven by stimulus (government and interest rates) to one driven by organic growth.
While there will be bumps along the way, it will not be enough to change the trend from growth to contraction in the years ahead.
Against that backdrop, we remain constructive about the opportunities to participate in this growth as investors and to add to the gains we have experienced again this year.
All the while, our investments remain properly diversified to insulate the portfolio from any turbulence that may develop.
You remain in a strong position financially.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“The S&P 500 extended its winning streak to seven months in August … and climbing to 12 new highs in the process. The path of least resistance was clearly to the upside despite a number of concerns grabbing headlines, the biggest of which seemed to revolve around the Fed’s taper timeline, the delta variant spread, and dampened vaccine efficacy, along with the general sustainability of the market rally. Robust corporate earnings certainly provided a strong layer of support for US stocks with Q2 marking another record -setting reporting period for S&P 500 companies in terms of growth, surprise, and beat rates. This blistering rate of recovery in earnings, which has again surpassed our already optimistic expectations, combined with an economic backdrop that has improved throughout the year, has prompted us to revise our 2021 S&P 500 [Earnings Per Share] target… [W]e also raised our 2021 year -end S&P 500 price target ... Canadian equities posted another monthly gain in August , marking the seventh consecutive monthly gain for the S&P/TSX. Despite this continued strength our valuation composite has compressed for four consecutive months as earnings growth has continued to outpace price performance. In fact, second quarter earnings beat upwardly revised estimates by almost 10% this quarter, led by continued earnings strength within Financials. Furthermore, the breadth of positive revisions re -accelerated in August on the back of these surprises, suggesting continued earnings momentum even as price momentum slows. Overall, we continue to believe price performance is likely to slow in the second half as the market transitions to more earnings driven market that will continue to see a normalization in valuations and ultimately a return to long -term trend earnings growth “
Stocks in your portfolio that made a new 52 week high this past month:
Accenture*, Bristol-Myers*, Canadian National Rail*, Fortis*, Johnson & Johnson*, Medtronic*, Microsoft*, Royal Bank*, S&P 500 Index, Telus*, United Health*, Waste Management*
Stocks in your portfolio that made a new 52 week low this past month:
Bristol-Meyers, Qualcomm
The Loonie declined by one and a half cents versus the US dollar to:
$0.79
Thank you,
Ian, Gab & Kaitlyn