May 2022 - Monthly Update
Ian Peebles - May 01, 2022
Trust this note finds you and your family well.
Your investment portfolio declined in April. It remains with positive performance over the past 12 months.
Stock markets in North America continue to experience volatility with wider than normal swings higher and lower. The major indices are lower this year and over the last twelve months. Selling pressure remains concentrated in the technology sector as well as other select high quality growth names. The individual companies in these areas that we own continue to thrive fundamentally, reporting another quarter of record earnings while raising their guidance and expectations for the year ahead. Defensive areas such as health care, consumer staples, telecom and utilities remain in demand. This again reinforces the importance of owning a high quality portfolio of properly diversified businesses to insulate our investments during turbulent times while positioning us for growth in calmer times.
The current quarter of earnings is nearly complete and the results and forecasts have beat expectations of just three months ago. Demand in the North American economy is broad based and robust. Projections for Canadian GDP growth moved higher in April and are now expected to top +4% for 2022.
While inflation remains elevated and prices higher than one year ago, the pace of inflationary gains may have actually peaked. In the U.S. the month over month rate of change declined between March and April. A leveling off in the rate of change is a precursor for a moderation and return to the long term target of 2%.
Interest rates in Canada and the U.S. have risen as expected and are approaching levels seen in 2018. We are back into a zone where we are able to reinvest our maturing bonds at higher rates than have been present for almost five years. The income being generated by both the bonds and stocks in our portfolio is moving steadily higher going forward.
The U.S. dollar strengthened to a 20 year high versus a basket of major currencies – this has contributed positively across your portfolio
You and your investment portfolio are in a strong position.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“The S&P 500 plummeted… in April, the biggest monthly loss for the index since March 2020… prior to the … rally during the first three days in May. The four -month decline… marked the worst start to a year since 1939. The sharp backup in yields was the major headwind for US stocks during the month, while bouts of curve inversions, persistent inflation, geopolitical uncertainty, and COVID -19 -induced lockdowns in China were additional talking points keeping the path of least resistance to the downside. Admittedly, we did not anticipate this type of price selloff in [the first half], but we still believe stocks will rebound in the coming months as opposed to descending into a long and protracted bear market like many investors are predicting. Indeed, the fundamental and economic backdrop of US equities, particularly corporate earnings and the consumer, have been resilient, and while so far this has meant little in terms of support for market performance, we do not expect this trend of neglecting positive fundamentals to continue through year -end… The S&P/TSX declined [for] the worst monthly return since March 2020. Despite this weakness the TSX still meaningfully outperformed the S&P 500 and the NASDAQ… While there was certainly a mild defensive trade in April, as Utilities, Staples and Communication Services outperformed, the bulk of the weakness continued to be driven by higher valuation areas of the market… Overall despite this recent weakness, Canadian equities remain a strong relative value play and offers many key points of stability within global equity markets, in our opinion.”
Stocks in your portfolio that made a new 52 week high this past month:
Bristol-Myers, Fortis*, Johnson & Johnson*, United Health*, Telus*, Waste Management*
Stocks in your portfolio that made a new 52 week low this past month:
Home Depot*
The Loonie declined two cents versus the U.S. dollar to:
$0.78
Thank you and all our best,
Ian, Gab & Kaitlyn