Weekly Update, July 30th, 2021

Jul 30, 2021 | Brenda Miller


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Good afternoon,

 

Please find below our bi-weekly market commentary, where we will discuss market conditions with a focus on technology. In the middle of earnings season, not all sectors have performed the same, which is a good reminder to stay diversified in your asset allocation. As noted below, many companies have reported good earnings but that had already been priced into the market.

 

This week at Brenda Miller Wealth Management, Taylor celebrated his 28th birthday yesterday enjoying an evening out with his parents and a wonderful meal. On a similar note, Brenda’s birthday is on Sunday, but she doesn’t really celebrate those anymore. Furthermore, we wish Joel the best of luck as he looks to write his Conduct and Practices exam this Monday.

 

This week's Current Account discusses the topics of the Olympics, gender equality, and women in sports. What it did miss, which is unfortunate, is this day in 1976, Caitlyn Jenner won the gold in the Men’s Decathlon as Bruce Jenner at the Montreal Olympics. Penny Oleksiak has become Canada’s most decorated Summer Olympian. Way to go, Penny! We are also cheering on Ava Stewart from Bowmanville. Ava is competing in Artistic Gymnastics.

Please remember that Monday is the Civic Holiday in Ontario and the office will be closed.

 

Taylor’s word of the week this week is Eclectic, which means “deriving ideas, style, or taste from a broad and diverse range of sources.” Our team brings together an eclectic thought process as we put together these updates!

Enjoy the long weekend,

 

Brenda, Taylor, Joel, and Jacob

 

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We’re in the middle of the dog days of summer. And global equity markets remain in the midst of a very strong year, with Canadian, U.S., and European equities sitting near all-time highs. Asian markets have not kept pace, but we’ll delve into that story at a later date.

The U.S. Federal Reserve garnered some attention over the past week, as it always does. Its updated economic outlook was largely in-line with what investors were anticipating. And the Fed, as it’s often called, is not likely to alter one of its major monetary tools – its asset purchase program - until the end of the year. The other noteworthy development in recent weeks has been the earnings season, which has been good enough to meet elevated expectations. Below, we discuss the results from the technology industry, which is arguably the most important for global equity markets given its sheer size and resilience in the face of the Covid-19 pandemic.

Many large technology companies reported second quarter results over the past week that were solid overall, with the odd exception here and there. It reflects the favourable demand environment for the range of products and services they offer. Expectations were high, and so the stocks themselves did not necessarily respond as positively as some may have wanted, serving to remind investors that stocks are effective at reflecting expectations, and it’s the future that matters more than the past.

Generally speaking, the long-term earnings outlook for the sector remains encouraging given secular forces that should continue to drive demand. In addition, the reopening of economies should act as an additional tailwind. But, it is worth acknowledging that the pace of growth may decline from the exceptionally strong levels seen in recent quarters. This moderation can be characterized as a return to more normal growth as the pandemic-driven benefits wane and the year over year comparisons simply become harder to sustain. Cost pressures are also building, driven by supply chain issues, and are expected to be a challenge over the intermediate term.

Investors should also be mindful of two other issues facing the technology sector: interest rates and regulation. Both present potential headwinds that may come and go over time. The risk of higher interest rates was a concern earlier this year when inflationary pressures began to mount. Higher rates present a risk to the valuation that investors assign to future earnings and cash flow. This concern has faded in recent months, but is bound to resurface at some point in the future.

Meanwhile, regulation is not a new worry either. But, regulatory uncertainty is poised to escalate in the U.S given an administration that appears willing and eager to take a harder stance against big tech. It’s hard to predict the outcome of any legal matter, but the mere existence of more investigations and court cases could create new sources of uncertainty.

We believe technology will remain one of the most influential industries in the global equity markets going forward. But, as with all investments, it’s important to recognize there are opportunities and risks, and portfolios should be managed accordingly by ensuring appropriate exposure and maintaining proper diversification.

Should you have any questions or concerns, please feel free to reach out.