Kingsmill's Investment Miscellanea - Friday June 7th, 2024

June 10, 2024 | Joshua Kingsmill


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I'll have more commentary next week once I've had a chance to digest the interest rate cut announced this week (and seemingly more to come in the following months). This has implications to consider in terms of investing going forward, mortgage rates, the Canadian/US dollar exchange, and the housing market, especially considering the golden era of the last few years where GIC's could lock in over 5% with no market risk.

One factor to consider is the weighting we might give to owning US stocks vs. Canadian ones. Most of my clients have always had a stronger inclination towards US stocks, and this has served them well over the long haul: both because of the exchange rate fluctuations providing a hedge, as well as the reality that there are many sectors where Canada doesn’t have much of a presence, notably technology. Canada has long been associated with the biblical phrase “hewers of wood and drawers of water” when describing our economy, and ultimately our stock market, which is very natural resource-focused.

Whether famous or infamous, the Magnificent 7 stocks have been the stock market story for the better part of two years. They have dominated market performance so much that markets have the narrowest leadership since the Technology Bubble. However, while narrow leadership is typically the result of deteriorating fundamentals in the broader market, that is not the case today. Earnings are hooking higher, while the economy continues to expand at or around trend growth. More importantly, in regards to the breadth chart below, another explanation for a lower percentage of stocks outperforming the index is how much mega-cap stocks are distorting index performance due to their sheer size and contribution weights.

The takeaway from this is that for those with no exposure to a small group of stocks, their relative performance over several years would be poor.

 

 

 

Now just a fun note: avid readers will be able to look up my Oilers prediction for winning the Stanley Cup from the beginning of the season. Fast-forward to today: and The Edmonton Oilers are in the Final vs the Florida Panthers. Canada’s own Drake has placed a $500,000 wager on the Oilers winning. I couldn’t agree more. Note: I’ve never placed a bet on any sporting event, despite my prognostications over the years, and my predictions should not be construed as advice: how is that for a waiver of liability? GOILERS!!!

 

Have a great weekend.