May Update
The Markets
The TSX was up 2.1% for April and up 5.1% year to date
The S&P 500 was up 0.6% in April and 7.7% year to date
The NASDAQ was down 0.7% in April and up 16% year to date
Canadian Universe Bond Index up 0.86% in April and 4.03% year to date.
I am sharing the audio commentary from Jim Allworth, Chief Strategist and Mark Bayko from our Portfolio Advisory Group
And I am attaching an interesting article on Behavioural Bias in investing.
From our Portfolio Advisory Group
Volatility remains relatively subdued as the concerns about the banking sector that arose in early March have subsided, for now. With that in mind, some of the fundamental issues that had been front and centre over the past year have understandably come back into focus. Chief among those is inflation. Below, we take a closer look at where it stands and what we expect going forward.
Inflation is a normal part of a well-functioning, and growing, economy. Inflation rates tend to vary over time despite the fact the Bank of Canada and U.S. Federal Reserve have goals of maintaining long-term inflation rates around 2%. For example, the annual change in the Consumer Price Index, or CPI, in both countries, ranged from 1% to 3% over the past 25 years, with the exception of a few occasions before and after recessions when inflation fell meaningfully only to bounce back along with a recovery in growth. All that changed, rather sharply, in 2020 with the reopening of the global economy after the pandemic-induced shutdowns. At their peak last year, inflation rates in North America surpassed 8%. These pricing pressures led to a revaluation of most asset prices. It also led to one of the more aggressive and synchronized interest rate tightening campaigns undertaken by central banks in history.
Fortunately, there has been notable progress with inflation receding over the past year. For example, the most recent reading of headline inflation in Canada and the U.S. was 5.2% and 5.0%, respectively. To be clear, those figures are still elevated by historical standards, and remain a ways off of the targets of both central banks. Nevertheless, it’s an improvement, and we have clearly transitioned from a “high and rising” period of inflation to one where inflation is “high and falling”. That subtle change has translated into more stable returns across asset classes of late and it’s the primary reason the year has been more rewarding for investors so far, than in 2022.
As usual, there is some nuance that bears some consideration. The most recent U.S. inflation reading revealed that while broad pricing pressures are abating, some categories are either falling less or still rising. For example, core inflation, which excludes categories like food and energy, posted a modest increase (at 5.6%) from the prior month. Moreover, services inflation, which includes categories like rent, medical services, airfare and car insurance for example, has yet to meaningfully fall and remains elevated (at just over 7%).
The pressures listed above explain why the U.S. Federal Reserve may raise rates yet again when it meets next month. Minutes from its March meeting revealed that it had intended to raise rates by 0.5% but grew more cautious in the wake of some signs of stress in the banking sector. Even the Bank of Canada struck a similar tone over the past week despite keeping its policy rate on hold. It suggested that while progress has been made, the economy has been stronger than expected, and may require more time and potentially more action on its part to get inflation within the vicinity of its targets. Interestingly, markets continue to believe rate cuts may be on the table in the second half of the year.
The bottom-line is inflation trends have improved, and may remain on the right trajectory as tighter financial conditions drive goods and services prices lower over time. That should remain a tailwind for stock and bond prices. But, another issue is likely to take hold at some point in the form of a recession and the risk it poses to growth, corporate earnings, and stock prices. Nevertheless, it is arguably a more manageable challenge for central banks and investors, and something we continue to prepare for.
Wealth Management
The deadline for filing personal tax returns was April 30 so hopefully everyone has their return in.
If you are getting a refund and looking for some ideas on how to invest your refund I am including an article with some ideas. This article was written prior to the First Time Home Savers account (FHSA) and this can be a consideration for people who have not owned a home in the past. I am also attaching an article comparing saving in RRSP, TFSA or FHSA.
Fraud is on the rise. Our office has stopped two fraud attempts so far in 2023. RBC has produced some literature on fraud prevention. Here are a couple of links to articles.
Five Cyber Tips to Tidy Up (and Help Protect!) Your Digital Life (rbcroyalbank.com)
In the Community
I am thrilled to announce the Hearth Place Cancer Support Centre Gala was a huge success and we raised over $36,000. Thank you again to those who donated and came to the Gala. Hearth Place receives no government funding and serves all of Durham Region residents. They are grateful for events such as the gala which continue to support the good work they do for families living with cancer.
RBC Dominion Securities Durham Region donated $2000 to the Gala and I personally was a gold sponsor for the event.
Recently our office has also donated $2500 to Canadian Mental Health Association to the Durham chapter for youth mental health.
Where would charities be without corporate Canada.
I will be participating in the MS Walk again this year on Sunday May 28 at 11 am. The walk will be held at Heydenshore Pavillion in Whitby and if anyone is interested in coming out to walk with me, please register here or donate here.
Karen Robertson - Fundraising For Multiple Sclerosis Society of Canada (donordrive.com)
Team Notes
Our office is closed on Monday May 22 for Victoria Day.
I would be remiss if I didn’t mention the Leafs and how exciting the games have been (and I’m not a hockey fan).