February 2023 - Monthly Update
Kaitlyn Richardson - Feb 01, 2023
The year 2023 has started off positively for your portfolio and we continue to move further away from the lows of last summer.
It appears that a more sustainable investment market recovery is underway.
The prospects for the North America economy remain strong as evidenced by the job market and corporate balance sheets.
In the United States (U.S.) 500,000 people started a new job last month as did 150,000 in Canada. A new role is created to meet the long-term interests of a company (spanning years not months), meaning these new jobs will be enduring ones. Businesses are investing in human capital as a result of their strong balance sheets and prospects for growth.
The rapid and large rise in both inflation and interest rates were two of the main negative trends last year. There was an unusually wide range of possible outcomes for the economy and investment markets. This created greater uncertainty and consequently, indiscriminate selling for stocks and bonds. Both trends have now stabilized and are on a path to once again contribute positively to your portfolio.
In 2022, inflation jumped from 0% to a peak of 9%. Today, while inflation is higher than normal, it continues to improve towards the 2% long term target. At the same time, overnight interest rates went from 0% to over 4.5%. Overnight rates have stopped going up. Markets are predicting we will see rate cuts later this year. When interest rates do begin to decrease, they will trend towards 3%. This rate is widely viewed as the neutral rate - neither speeding up nor slowing down an economy.
A repeat of the rises in either inflation and/or interest rates in 2023 is very unlikely. The range of possible outcomes have narrowed. Fundamentals are being reflected again - we are seeing individual investments behaving differently. Our strategy remains to own a properly diversified group of high-quality U.S. and Canadian companies with great leadership. These businesses are profitable, central to the economy and are ready to thrive as the next cycle of economic growth unfolds.
Your investment portfolio remains in a strong position.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“The S&P 500 rallied … in January, marking the strongest start to a year since 2019, and ended the month 14% above its current mid-October low. Disinflationary signals, a still-robust labor market, and the approaching end to the Fed rate hike cycle appeared to increase expectations for a soft-landing scenario by the Fed and boost US stocks in the process. That being said, the bearish narrative remained in place with some strategists and market pundits calling for significant price losses in the coming months, resembling previous crisis-level drawdowns. Indeed, a forecast for the S&P 500 establishing a new bear market low during 1H23 has become an increasingly consensus call, and one that we disagree with. While we cannot completely rule out this possibility, our in-depth historical analysis, suggests this would be a low probability event. Therefore, we continue to believe 10/12/22 represents this cycle’s price low and that we are in the early stages of the next bull market. However, we are anticipating a good amount of volatility and price choppiness in the months ahead as the normalization process in the market continues and bearish groans grow louder. Therefore, we believe active investment strategies will be pivotal in 2023… The S&P/TSX gained … in January, reaching the highest level since June 2022 and outperforming the S&P 500 for the second month in a row… Indeed, the strong relative value and cash flow positions resulted in the TSX being 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:
Telus*
The Loonie retreated one cent versus the U.S. dollar to:
$0.73
Thank you and all our best,
Ian, Gab, Kaitlyn, & Nataliia