June 2023- Monthly Update
Nataliia Riabenko - Jun 01, 2023
Listen here:
Hope this note finds you well as we launch ahead into the summer.
May was an uneven month for your investments as strength in the technology sector juxtaposed against weakness elsewhere. Going forward, we expect leadership in the technology sector to expand to a broader recovery and extend the general trend of growth of the last eight months.
Investment markets continue to stabilize in line with their return to a normal level of uncertainty following last year’s wider range of outcomes that accompanied the inflationary spike. In the United States (U.S.), their main stock index (the S&P500) sits at the highest level in over nine months.
A normal balance between supply and demand is being restored. The overall rate of inflation continues to slowly trend back towards a target of 2%. The path is predictably lumpy, unique to each individual component and is taking longer than wanted.
That said, most recent figures reinforce this moderating trend.
In the United States (U.S.), it was the producer price index posting a 2.3% year over year inflation reading and a report that showed wage growth had moderated in May. A survey from the institute for supply management showed the U.S. services sector barely grew in May and new orders slowed pushing a measure of prices paid by businesses for inputs to a three-year low to aid the Federal Reserve's fight against inflation.
The present state of the economy is doing just fine.
The most recent quarter of earnings overall were ahead of expectations. The World Bank recently increased their forecast for global economic growth in 2023.
A moderating pace of inflation is feeding expectations that the U.S. Federal Reserve will not increase overnight interest rates at their next meeting June 13th.
Overnight interest rates are not the only tool available to reduce potential demand in the economy. New reports consider that regulators in the U.S. are preparing to tighten regulations for large banks which could include raising their capital requirements by 20% on average. Higher capital requirements directly impact the amount of lending or potential lending there is in the system, reducing inflation potential by shrinking the amount of credit that causes excess growth.
The Bank of Canada became the first major global central bank to pause its cycle of overnight interest rates hikes in January. Since that time, the Canadian economy’s performance has been steady and stronger than expected. This was the justification used by the Bank of Canada to increase overnight interest rates again in June.
The businesses that we own are extremely well run, profitable and central to the economy while providing something tangible that creates a true economic value.
Your investment portfolio remains in a strong and stable position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“The S&P 500 managed a [fractional] gain in May during a mixed month for US stocks with mega-cap tech names continuing to drive market returns. While it is no secret that YTD performance has been top-heavy, our work shows that narrow breadth is not a harbinger for market performance by itself… With five months of the calendar year now done, it has become increasingly clear to us that stock market resilience is here to stay. Heading into 2023, the biggest worry was that the Fed was underestimating its tightening campaign and the cumulative effect would push the economy into a severe recession. However, after 5 [percentage points] of rate increases and the hiking campaign nearing its end, inflation has clearly subsided and yet the labor market has remained intact. In other words, we believe the anticipated recipe for disaster is simply not present. Yes, earnings growth may remain a sticking point, but it seems investors fully understand this and are looking past 2023 results and expecting growth to reaccelerate in 2024. Therefore, we see market price momentum persisting, albeit at a slower clip for the rest of the year, and have raised our 2023 S&P 500 year-end price target... The S&P/TSX declined… in May, significantly underperforming the Technology-heavy S&P 500. The Canadian Technology sector was the only sector to gain in the month. Meanwhile the big three sectors (Energy, Financials and Materials) all meaningfully underperformed the S&P 500 and the TSX during the month. Despite the near-term challenges of the big three sectors, we continue to believe the TSX remains well positioned to outperform. In our opinion the strong relative value and cash flow position of the TSX remains a clear source of downside protection in 2023.”
Stocks in your portfolio that made a new 52 week high this past month:
Mastercard*, Microsoft*
Stocks in your portfolio that made a new 52 week low this past month:
Bristol-Myers Squibb*, Telus*, TD Bank*, Qualcomm
The Loonie eased half a cent versus the U.S. dollar at:
$0.735
Thank you,
Ian, Gab, Kaitlyn & Nataliia