"The best wisdom comes from the hardest struggle." Xavier Rudd
Good morning & happy Monday
My family was fortunate enough to attend a wedding this weekend, which was absolutely beautiful and full of milestones for all those in attendance. The ceremony was lovely and the bride and groom graciously invited our daughters Presley-Mae and Dilynn to the ceremony, an opportunity for them to see their first real life bride, a real special moment for my little ladies. During the service, the Priest jested that marriage is not like the movies where everyone lives happier ever after, “it’s not quite that simple”….a comical comment of which we all know to be true and what I refer to as……
The Great Collide.
Our prime working years, our prime parenting years and our prime relationship years with family and friends, all seem to collide over the same time frame and make everything we do and every relationship we nurture challenging at times. One does not need to be married or have children to understand that there are a number of chapters through our lives that are full of overbearing responsibility. In his book Sapiens: A Brief History of Humankind, Yuval Noah Harari recognizes that “one of history’s few iron laws is that luxuries tend to become necessities and to spawn new obligations” something we can all recognize and appreciate. Indeed, the weight of responsibility is heavy…..but it’s ours to control. As Harari mentions, “happiness does not really depend on objective conditions of either wealth, health or even community. Rather, it depends on the correlation between objective conditions and subjective expectations.”
The Great Collide, exhilarating, integral and essential years that begin long before we enter the working world, and last long into retirement. For us to flourish and thrive through these years, it’s imperative that we are mindful of challenges and ensure we, as individuals, are focused on tasks that can inform us and elevate our lives so we can ensure that we are constantly influencing our mindset and our experience of life. Reading, exercise and meditation, starting new positive routines for ourselves and those around us can help shift us from a fixed mindset to a growth mindset.
“A meaningful life can be extremely satisfying even in the midst of hardship, whereas a meaningless life is a terrible ordeal no matter how comfortable it is.” Yuval Noah Harari, Sapiens: A Brief History of Humankind
And now…to the Markets
S&P futures down 0.2% after US equities finished mostly higher last week with upside leadership from cyclicals with banks, industrial metals, transports and machinery among the standouts. Asian markets mostly lower overnight with Japan the big decliner, off more than 1.5% and down for a third straight session. European markets weaker. Treasuries firmer across the curve with 10- year yields below 1.30%. Dollar weaker vs yen but firmer vs euro. Gold off 0.2 and Bitcoin futures up 2.3%. WTI crude off 1.7%.
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 few weeks, 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 few weeks that were solid overall, with the odd exception here and there. It reflects the favorable 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.
As investors, we are 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 we continue to manage portfolios by ensuring appropriate exposure and maintaining proper diversification, a discipline that ensures we are constantly uncovering opportunity amid uncertainty and have you well positioned for your journey ahead.
“Follow the sun, and which way the wind blows, when this day is done. Breathe, breathe in the air. Set your intentions. Dream with care” Xavier Rudd
Be well & enjoy the moments
Derek