July 2023 - Monthly Update
Kaitlyn Richardson - Jul 01, 2023
Listen Here:
June was another quietly positive month for your investment portfolio. This is consistent with the overall investment environment that continues to improve from the lows of October 2022.
These positive trends mirror a North American economy that continues to perform ahead of expectations.The labour market is displaying encouraging signs as unemployment rates continue to decline. Improved hiring activity contributes to economic stability. It also provides support for consumer spending by supplying households with income to put back into the economy (even at higher costs of living).
Inflation remains above target at 3.4%. It continues to moderate, following a lumpy path back towards the long term target of 2%.
Interest rates are higher than normal with overnight interest rates sitting in the 5% range.
The Bank of Canada has said that the economy is stronger than it had expected and its concern is that inflation will take longer to get back to normal. This is the justification for raising interest rates 0.25% in June as well as the 0.25% increase in July.
Interestingly, changes in the cost of housing make up part of the calculation for inflation in Canada and America. Interest rate expenses are part of housing costs and the cost of debt goes up when the Bank of Canada increases interest rates. If one removes these higher interest costs related to housing that have been created by the bank of Canada raising rates, inflation is actually back to target around 2%.
In other trends:
Investor sentiment was bolstered by robust corporate earnings, improving economic data, and stabilizing monetary policies. The technology sector continues to lead the way in 2023 with other sectors beginning to join the recovery in the month of June. This broadening of participation is a positive sign that we expect to continue into the second half of the year.
Trade tensions between North America and key global partners eased during June. Negotiations aimed at resolving long-standing disputes between America and China made progress, including face to face meetings between the highest level officials, fostering optimism regarding future trade relationships.
Being a successful investor requires an approach to investments with a diversified and long-term perspective. Your investment portfolio remains in a strong and stable position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“[First half] stock market performance was quite impressive with the S&P 500 …. strongest monthly performance [year-to-date]. In fact, the index closed June at its highest level since March 2022. Despite this market strength, plenty of skepticism remains, with many still expecting the S&P 500 to finish the year at lower levels. We disagree. The macro and earnings backdrop appear to support continued gains, albeit at a slower pace, in our view. In addition, we were very encouraged that participation significantly broadened last month, with six sectors outpacing the index (and most notably NOT led by mega-cap tech), since narrow market leadership had been one of the main bearish talking points. Nonetheless, we believe investors may have priced in a bit too much good news last month. Despite not hiking at its June meeting, the Fed hardened its rhetoric and implied that the rate hike cycle is certainly not complete with the Chairman signaling at least 50 [basis points] more tightening needed and pushing any rate cuts much further out than previously expected. Therefore, we expect a bumpier path during [second half] as investors recalibrate their expectations against this backdrop. The S&P/TSX gained … in June, underperforming the S&P 500 … for the second month in a row. The TSX continued to be weighed down by the big three sectors (Energy, Financials, and Materials), which have all meaningfully underperformed the S&P 500 and the TSX over the last few months. In fact, the S&P/TSX [is] well behind the impressive … return for the Technology-heavy S&P 500. Despite the near-term challenges of the big three sector, we continue to believe the TSX remains well-positioned to outperform in the near term. From our perspective, our year-end 2023 S&P/TSX price target is still very achievable given recent weakness has largely been driven by the big three sectors, which are now trading at or near cycle-low valuations. In fact, in our second half outlook we highlighted that a return in earnings confidence will be key to achieving this target. Overall, we remain steadfast in our view that Canadian equities offer strong relative value, cash generation, and stability as global markets travel down the long and increasingly curvy road of normalization.”
Stocks in your portfolio that made a new 52 week high this past month:
Accenture*, Mastercard*, Microsoft*, S&P 500 Index
Stocks in your portfolio that made a new 52 week low this past month:
Telus*, TD Bank*, United Health*
The Loonie gained two cents versus the U.S. dollar to:
$0.755
Thank you,
Ian, Gab, Kaitlyn & Nataliia