Market Commentary
January 27, 2023
Making Cents of the Markets
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Listen now to the most recent Making Cents of the Markets. We talked about the Bank of Canada’s interest rate increase and Tuesday’s unexpected technical glitch on the New York Stock Exchange.
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Beyond the Markets
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Be in the Know
“When human hearts and minds connect, a lot stands to happen. Never feel that investing time and money in networking is a wasteful act.” – Monique Nsanzabaganwa
Big Money, No Whammies
The famous billionaire contrarian investor Jeremy Grantham is worried that too many people are worried. He was the first to be concerned, and with everyone joining him, he might be wrong.
He was referring to recent bearishness reaching a fever pitch heading into the end of 2022. Extreme fear is ripe ground for a market rebound and boy have we had one this year. Probably too much so, as measured by the recent CNN Fear and Greed Index, but we’ll take it:
Most financial commentators and economists believe that a U.S. recession this year is a foregone conclusion. Therefore, it was interesting to see America’s fourth-quarter economic growth rise a pretty healthy 2.9% (excluding inflation).
A recession is normally defined as two or more consecutive quarters of negative GDP growth, although it’s not clear why the Business Cycle Dating Committee elected not to count the Q1 and Q2 ’22 readings (two negative bars).
Last quarter’s relative success involved a still-resilient consumer, but will it last? Household savings fell to 2.9% from 7.3% a year before. Painful mortgage resets and a cooling jobs projection stand to tighten belts further.
In terms of corporate earnings, expectations are that the S&P 500 sees the average earnings on the index fall 2.7% in the 4th quarter year-over-year. Even if earnings performance turns out to be as sluggish as economists are predicting, there is the possibility that management teams point to rosier times ahead. Especially with inflation input costs mostly cooling.
Has the Bank of Canada Finally Removed Its Hiking Boots?
The Bank of Canada raised the key overnight rate by 25 basis points to 4.5%, a rate it plans to maintain when they next meet on March 8th. They cited slightly stronger than expected GDP growth for December, putting last year’s overall growth rate at 3.6%. An economic lull in the first half of this year is expected, and then a reacceleration in the second half. The Bank believes core inflation has peaked.
What Will Be the Canadian Government’s Next Move? So Far, They Won’t Telus.
A Canadian court has ruled against the Canadian government’s attempt to kill the Rogers plan to buy Shaw Communications. Canada’s Commissioner of Competition said he was “truly disappointed” and would appeal. So are consumer advocate groups, other telecom companies (especially Telus), and some politicians, arguing that lower competition among cellphone providers will mean elevated pricing for consumers. This is especially noticeable when compared to American cell phone plans.
To our minds, Telus is the best in the country and keeps a well-deserved spot in our portfolios. Telus has opposed the deal for selfish reasons. They don’t want a richer, more capable telecom taking over the family-run Shaw’s business in the West. Ever since company founder JR Shaw died, the family’s infighting and disorganization has meant less competition for Telus. Bad for consumers but great for Telus.
Yes, It’s Virtual. But Will It Become Reality?
Later this year, Apple will release its first major product since the Apple Watch in 2015. A virtual reality/augmented reality headset is coming, one that will undoubtedly give Facebook’s hardware a run for its money. It’s said to have eye and hand-tracking, unlike rivals, and a steep US$3,000 price tag. It was seven years in the making with 1,000 workers on the project, so it could kickstart revenue growth when it is released.
But widespread adoption isn’t assured, as Facebook is finding out. Sure, In the spirit of Steve Jobs, Apple prefers to create new products customers don’t yet know they want. But simply wearing the device feels weird and can even cause headaches. Below is an artist’s estimate of how it might look, based on a written report describing what they look like.
Do you suppose they will sell it with a snorkel or a pair of ski poles?
Our Strategy
Welcome To Camp Soft-Landing?
As mentioned above, many industry professionals believe a recession this year is their base case. As they choose to stay at camp recession and indices continue to climb, they must be getting increasingly nervous. They are missing out on the good action as the S&P 500 is en route to close the first month of the year with more than a 5% gain, much more than the average January historically.
Markets on the other hand seem to be staying over at “camp soft-landing”, especially after the solid GDP report out of the US we saw this week.
With the debate continuing, we are not quite yet willing to pick a side. What we are prepared for is either scenario, with a plan A and plan B in place.
For now, we are content with the markets’ recovery, as investors continue to be forward-looking beyond any of the quoted challenges we encountered last year. We continued to tailor our Legacy portfolios towards more of a neutral stance, not overweight in any particular area of the market, but also allowing them to participate in the rally.
Next week, we will monitor the Fed’s first interest rate decision of 2023, as they are largely expected to follow suit and join the Bank of Canada with a smaller 25 basis points hike to 4.75%. Heck, there is even a small chance that they will actually choose to rather pause, according to market bets on probabilities. As the move would likely be viewed as positive, it could help push markets further along.
Visual of the Week
History reminds us that after every bear market follows an even stronger bull market!
The comments and opinions expressed in this newsletter are solely the work of Pinkowski Wealth Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Pinkowski Wealth Management does not assume any obligation to update it or to advise on further developments related. Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.
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