June 2022 - Monthly Update
Ian Peebles - Jun 01, 2022
Trust this note finds you and your family well.
Your investment portfolio declined in May - It remains with positive performance over the past 12 months.
May was another turbulent month for stock markets . New lows for 2022 were touched during the first two weeks, only to be completely reversed one week later to end the month unchanged.
For perspective on where we are on the economic/investment journey, as well as where we are headed, let’s first revisit the response measures from the beginning of the pandemic.
In an effort to avoid an economic depression, central banks decreased interest rates to 0% and governments transferred cash into bank accounts in March of 2020. Throughout 2021, the economy transitioned into a new cycle of growth. Towards the end of 2021, concerns were raised about the pace of growth ahead in 2022 and 2023. There was a risk identified that a permanent cycle of higher prices (greater than the economy can absorb) was being created over the medium term.
Beginning this March, central banks in Canada and the United States (U.S.) began raising interest rates to bring them back to more normal levels. At the same time, prices for goods and services moved higher. This reflects the short-term imbalance caused by disruptions to supply without a change in demand.
Higher prices and rising interest rate expenses reduce potential spending and slow the pace of economic growth. In response, consumers shift spending behavior into lower priced products as well as deferring purchases.
The objective is to lengthen the amount of time before the next recession by spreading out growth and spending over a number of years (rather than months) while bringing supply and demand back into balance.
There is emerging evidence that prices are declining in some areas due to reduced demand and increased supply.
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Target Corp (A discount retailer in the U.S.) has announced it is slashing prices on stay at home pandemic related goods
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Wholesale lumber prices are down 50% from March 2022. These inventories and lower prices make their way onto the shelves in 4 to 6 weeks
In the months ahead we expect to see this trend expand and continue.
That said, demand for goods remains strong as illustrated by U.S. manufacturing activity expanded at a faster than expected pace in May. From the most recent meeting of the U.S. Federal Reserve: “All participants concurred that the US economy was very strong, the labour market was extremely tight, and inflation was very high… “A number of FED participants, however, said data had begun to indicate that inflation may no longer be worsening… but… it was too early to be confident that inflation had peaked”.”
Today, we are experiencing slowing growth (not contraction) against the backdrop of a strong North American economy and a lumpy return to the balance between demand and supply. The fundamentals for the individual businesses we own remain sound as confirmed by their most recent quarter of earnings and heightened guidance for what we should expect over the next twelve months.
You and your investment portfolio are in a strong position.
The view from Brian Belski, BMO’s Chief Investment Strategist:
Stocks in your portfolio that made a new 52 week high this past month:
Bristol-Myers, Fortis*, Kraft-Heinz*
Stocks in your portfolio that made a new 52 week low this past month:
Accenture*, Home Depot*, Microsoft*, S&P 500 Index
The Loonie gained half a cent versus the U.S. dollar to:
$0.79
Thank you and all our best,
Ian, Gab & Kaitlyn