December 2022 - Monthly Update
Kaitlyn Richardson - Dec 01, 2022
Trust this note finds you well as we look ahead to a new year in 2023.
Looking back on 2022, it was a year where you held ground and your significant profits of last 3 years were kept.
We are ending the year with strong gains from November as well as the last three months. Your portfolio shows a small gain over the past 12 months. Objectively, the prospects for the future are looking good.
Inflation is still higher than normal. The economy and households are adjusting to higher interest rates. Investment markets are stabilizing while getting used to a normal interest rate environment (0% was never normal) as well as the conflicts and geopolitical problems that make headlines.
Economically, we have transitioned from a period of inflation to one of disinflation. The cost of energy is something that impacts the price of all goods. The price of a barrel of oil now is lower than it was twelve months ago. This is an important example of how the disinflationary trend is likely to continue.
As we have been talking about for the last few months, overnight interest rates in North America have effectively peaked. Canadian overnight interest rates will end this cycle lower than those in the United States (U.S.). It is also likely Canadian rates are cut before the U.S.
Recessions are normal and part of a wider cycle of growth and prosperity. The next recession will not have a permanent negative effect on your portfolio. Also, these periods of reset create the landscape for successful long-term investors like us to be buyers of mispriced assets.
Entering 2023 effectively breakeven (not having to make back losses from 2022) is an incredible position of relative strength. We accomplished this result by owning high quality businesses we understand, have exceptional management, that are central to the economy and thrive during periods of uncertainty.
The North American economy is beginning 2023 in the early stages of a manufacturing renaissance. This refresh of our industrial base reflects the cycle of renewal that is unfolding over large industries (Automotive, Aerospace, Transportation, Construction, Healthcare, Technology, Clean Energy, etc.). This will be one of the defining characteristics of the rest of this decade. It is an opportunity for incredible innovation around how we make things and move things around the continent.
Your investment portfolio remains in a strong position.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“Normalization Process Will Be Bumpy as Investors Recalibrate Expectations[:] The S&P 500 rallied … in November as the index notched back-to-back-monthly gains for the first time since Aug 2021. The Fed remained in focus as Powell’s reiteration that a slower pace of rate hikes may come as soon as December lifted stocks on the final trading day, while inflation, Q3 earnings, and China’s zero-COVID policy also influenced prices during the month. As we look ahead, we believe the great unwind and return to normalcy will continue in 2023- the unwind of the exorbitant liquidity that was flushed into the system in 2020-21, and a normalization process encompassing stock market returns, EPS growth, valuation, interest rates, inflation, and economic growth. As such, we believe the US stock market will attain mildly higher prices from current levels … However, the path is likely to be far from linear as changing market dynamics are sure to cause more angst than clarity especially as normalized interest rates and inflation remain at higher levels than most investors have ever witnessed, let alone persistent recession fears. Therefore, investors should be prepared for a “jack-be-nimble, jack-be-quick” environment and consider deploying more active investment strategies… The S&P/TSX increased … in November, the second monthly gain in a row … Yes, the S&P/TSX has significantly outperformed the S&P 500 year to date and has been a clear source of downside protection, a trend we believe is set to continue in the first half of 2023.”
Stocks in your portfolio that made a new 52 week high this past month:
Bristol-Myers Squibb*, Canadian National Rail*
Stocks in your portfolio that made a new 52 week low this past month:
Microsoft*, Qualcomm, Thermo Fisher Scientific
The Loonie gained one and a half cents versus the U.S. dollar to:
$0.745
Thank you and all our best,
Ian, Gab, Kaitlyn & Nataliia