The Month In Our Words

Hi,
 

Trust this note finds you well as we zoom into 2023.
 

Your portfolio was down in December and shows a small decline over the past twelve months.
 

For some context, your portfolio was much more stable and consistent than investment markets around the world. Less than half of your previous year’s gains were unwound.
 

The last twelve months contained numerous events that negatively affected investment markets. These events began in the first quarter of 2022 with a return of accelerating inflation, interest rate hikes as well as European conflict.
 

Zero percent interest rates were never to last. The course of last year saw interest rates normalize back up to 4%. In a more normal rate environment, your investment portfolio earns more. This is similar to what was experienced five years ago. For families that are committed to saving, this is a big win.
 

Today, higher interest rates are intended to bring down price inflation by slowing the pace of growth in an economy. In a slowing or bottoming economic cycle, it is best to invest in profitable, high-quality businesses (via their stocks and/or bonds) – this is exactly what you own.
 

Now that the world has greater experience with the trends of the past year - their effect on investment markets is more moderate. For us as investors, this means that markets are getting back to reflecting the fundamentals of strong businesses and their future prospects. These businesses create economic value every day and are worth more in the future as a result.
 

Over the past 15 years, North American markets experience three or more years of growth for every year of decline. With 2022 now behind us, we can be realistic in our expectations for growth now and in the future.
 

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

“Rally Fizzles in December as S&P 500 Logs Steepest Yearly Loss Since 2008[:] After consecutive monthly gains in October and November, the Q4 rally fizzled in December with the S&P 500 falling… finishing the year down… which marked the worst annual loss for the index since 2008. While the peak inflation narrative gained traction during the month, recession and earnings deterioration fears remained key overhangs, while the Fed’s higher for longer stance has brought upside terminal rate risks and increased concerns of a policy mistake. {W]e believe the first half of the year will bring price weakness as the market digests the aforementioned fears, and the bearish groans grow louder. However, we think some of this price weakness was pulled forward in December, and therefore foresee the potential market bottom occurring earlier in the year than previously anticipated, setting up a fairly decent second part of 2023. As such, we would advise investors to be very selective over the next few months and utilize an investment playbook to diffuse volatility which, in our view, would incorporate substantial exposure to dividend growth and high-quality stocks… The S&P/TSX declined… in December, partially reversing the gains over the last two months but outperforming the S&P 500. However, the TSX still ended the quarter up … and is still … above the low set on October 12… Indeed, the strong relative value position and significant exposure to the resource sectors resulted in the TSX being a clear source of downside protection, a trend we believe is set to continue in the first half of 2023.” Portfolio Strategy – January 2023. BMO Capital Markets.
 

- Stocks in your portfolio that made a new 52 week high this past month: Bristol-Myers Squibb*, Canadian National Rail*

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

- The Loonie gained half a cent versus the U.S. dollar to $0.74

 

We wish you and your family all the best for a happy, healthy new year.
 
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 https://research-ca.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx or ask your BMO Nesbitt Burns Investment Advisor for a copy.


 


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