The Month In Our Words



Hope this note finds you well as we approach spring and get set to turn our clocks forward.


Stocks and bonds declined in February following January’s strong start to the year.


As we've shared in our conversations of the last six months, our expectation is that the economy will find its inflection point later this year and a new cycle of economic growth will begin. Every passing day reinforces that the cycle of recovery is now underway for investment markets. The domestic economy in the United States (U.S.) will lead this next cycle of growth in North America and Canada’s economy will follow. In the medium term, the Canadian dollar will weaken against U.S. dollar. Canada will begin a cycle of lowering interest rates before U.S.


Being a successful investor over the long term includes identifying and understanding the important trends.


Often these trends are quantifiable (employment, income, economic activity, growth, etc.). Taken together, they reflect present conditions which we use to extrapolate into the future. As we have mentioned repeatedly, the present conditions for the North American economy are sound. Businesses are in a great shape financially as evidenced by the most recent quarter of earnings. They are incredibly profitable. With dividend payments going up, the outlook for their individual businesses is also bright. Hundreds of thousands of people are starting new jobs every month which also bodes well for their individual futures. These two pillars form a solid foundation to build from economically as well as a safety net to smooth out the inevitable economic bumps along the way.


Other trends are harder to quantify in an empirical sense yet remain important components to the overall trajectory for an economy and the big picture. Confidence is one such trend.


On that note, pessimism peaked last fall. For confirmation look no further than the headlines.


Last year the question was how much worse can things get economically as we head into the winter. The conversation anticipated an economic collapse that was to be severe (hard landing for the economy in financial jargon) accompanied by significant job losses. In hindsight, that did not occur and the discussion transitioned to an economic slowdown and small contraction (soft landing). Fast forward to today and we know the economy did not contract or collapse. Rather, it continues to grow at a slow pace. Now, we are introduced to the possibility that the economy will not contract at all (no landing). As investors, our expectation should be to complete the short recovery from last years temporary declines and shift back into an environment of absolute growth over the next year. In the meantime, the income from our individual investments has risen and with every day that goes by we are being paid more while we wait for the return of higher investment values.


Your investment portfolio remains in a strong and stable position.


The view from Brian Belski, BMO’s Chief Investment Strategist:


“US stocks stumbled in February, giving back some of January’s strong gains… Hotter-than-expected PPI [Producer Price Index] and core PCE [Personal Consumption Expenditures Index] releases, along with higher-for-longer Fedspeak were key developments contributing to the market’s repricing of rate hike expectations, which was a primary driver of price action. Based on our client conversations, the February decline was immediately used to suggest that early 2023 gains were simply a bear market rally and that stocks would move substantially lower from here. From our lens, however, we were not overly shocked by the losses. In fact, we had previously stated that price choppiness and heightened volatility was likely to occur in the coming months, and that any hotter-than-consensus inflation report may cause overreactions to the downside. Nonetheless, with the S&P 500 still 11% above its October price low, we continue to believe US stocks are in the early stages of a new bull market. Given our expectation for the normalization process in the market to persist throughout the year, investors should employ a disciplined and selective approach to investing, in our view, and refrain from abandoning their strategies following pockets of weakness. The S&P/TSX declined… in February, partially reversing January’s gain and broadly in line with the S&P 500. This negative performance came in the face of declining commodity prices with WTI down 2.6% and gold down 5.6% on the month. Indeed, gold was the worst performing industry in February, declining over 10%. Meanwhile, Energy was the second worst performing sector, declining 4.8% in the month. Overall, given the weakness in the resource sectors, the TSX performed relatively well vs. the S&P 500, once again highlighting the fundamental advantages of Canadian equities in 2023. Indeed, the strong relative value and cash flow position of the TSX remain a clear source of downside protection, a trend we believe is set to continue in the first half of 2023.” Portfolio Strategy – March 2023. BMO Capital Markets.

- Stocks in your portfolio that made a new 52 week high this past month: None

- Stocks in your portfolio that made a new 52 week low this past month: Johnson & Johnson

- The Loonie was unchanged versus the U.S. dollar at $0.73


We wish you and your family all our best.

Ian, Gab & Kaitlyn

* This specific security is covered under the research of BMO Capital Markets. For a full list of company specific disclosures keys please visit or ask your BMO Nesbitt Burns Investment Advisor for a copy.


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