April 2022 - Monthly Update
Kaitlyn Richardson - Apr 01, 2022
Trust this note finds you and your family well.
Your investment portfolio declined / was breakeven (no gain / no loss) in March. It remains with positive performance over the past 12 months.
Stock markets in the United States (U.S.) rallied in March to cut their declines of the prior two months in half.
Areas of strength and stability are the domestic/defensive sectors such as health care, telecommunications, utilities, and consumer staples. This is typical of the turbulent and transitionary environment such as we are in today.
Technology stocks, the leaders in 2020 and 2021, have been under pressure in 2022. The fundamentals of their businesses and earnings continue to grow and thrive.
The last three months has seen a steady climb higher for interest rates, culminating in the first hike of 0.25% by the Bank of Canada and the U.S. Federal Reserve in March.
This return to short-term interest rates of greater than 0% is a response to the strength of our economies and their respective job markets. The economy is moving out of the first boom year of recovery and into the middle years of slower expansion (not contraction).
For bonds, these short-term headwinds are what create the opportunity for us to refresh and reinvest our suite of bonds in a higher interest rate environment, increasing the cashflow earned by the portfolio for years to come.
Inflation (as measured by the consumer price index) was 6 to 8% in 2021 to finally help nudge the five-year annual average rate back over 2%. Higher prices are being driven by logistics not scarcity. We are not running out of anything; supply is simply not in the right place. This takes time to fix and moderate over the medium term. In the short term, we are seeing the effect of higher prices on household behaviour with:
- Deferral (wait to buy later)
- Substitution (buy something else at a lower price)
- Destruction (buy nothing)
- Purchase (have less to spend elsewhere)
Taken together, this makes it less likely the economy will overheat and could very well prolong the cycle of economic expansion by spreading out the spend over a longer period.
All in all, the U.S. economy continues to power the world while providing a foundation of economic strength and stability.
We remain careful/opportunistic buyers, adding to names we own, know and love while finding new great ideas to join the investment portfolio. We expect to continue to be active in the months ahead during this turbulent period inside a wider cycle of growth.
Against the backdrop of a North American economy that continues to expand, businesses that continue to grow, innovate and return more of their profits in the form of higher dividends will be rewarded by investors.
We expect the months ahead to remain volatile with larger than typical adjustments up and down for investment markets. As always, we have a plan to navigate the turbulent environment.
You and your investment portfolio are in a strong position.
The view from Brian Belski, BMO’s Chief Investment Strategist:
“The S&P 500 rebounded … in March after a difficult two -month start to the year, but still ended down … in Q1, marking the first quarterly loss since Q1’20 . US stocks were broadly higher during the month despite the long-awaited 25bps Fed rate hike, expectations for an accelerated tightening pace, persistent inflation worries, yield curve flattening concerns, and Russia/Ukraine fears. Given the unknowns related to the duration and scope of the war, the higher volatility regime is likely not going away in the near term, raising the importance of active investment strategies, in our view. Looking ahead, we believe the upcoming earnings period will be important for the trajectory of US stocks. Indeed, the S&P 500 earnings backdrop has been resilient thus far with Q1 bottom-up EPS being reduced less than average during the quarter, and Q2 -Q4 EPS and 2022 EPS being revised higher…, trends that many investors seem to be missing, and a key reason we have maintained our bullish outlook. As such, we continue to advise investors to avoid the noise and recession rhetoric, and maintain their investment discipline and process…The S&P/TSX gained … in the first quarter, well ahead of most global markets and the strongest quarterly outperformance versus the S&P 500 in 13 years. While the Energy and Materials sectors were core drivers of this outperformance, Canada also saw strong relative performance versus the S&P 500 sectors in Communication Services, Financials, Consumer Staples , and Industrials. Indeed, Canadian relative stability in the face of inflationary pressures and heightened geo -political risk was on full display in the first quarter. As such, we remain steadfast in our view that Canada is a strong relative value play and offers many key points of stability within global equity markets.”
Stocks in your portfolio that made a new 52 week high this past month:
Bristol-Myers, CN Rail*, Fortis*, Johnson & Johnson*, United Health*, Telus*
Stocks in your portfolio that made a new 52 week low this past month:
None
The Loonie gained one cent versus the U.S. dollar to:
$0.80
Thank you and all our best,
Ian, Gab & Kaitlyn