June 2023- Monthly Update
Nataliia Riabenko - Jun 01, 2023
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:
Stocks in your portfolio that made a new 52 week high this past month:
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:
Ian, Gab, Kaitlyn & Nataliia