From our Portfolio Advisory Group (from July 26)
First and foremost, our thoughts go out to those that have been impacted by recent wildfires, in particular those in Jasper National Park.
On the investing front, it has been an eventful few weeks. The Bank of Canada cut interest rates for the second consecutive time. Meanwhile, global equities have been weaker, driven by a classic sector rotation rather than broad market weakness. More specifically, large-cap technology stocks have sold off, while other sectors and smaller stocks have seen gains. In some ways, this development has been overdue and may be a healthy shift as “tech” has dominated market returns for a long period of time.
There are a few catalysts driving the rotation. First, the increasing probability of a U.S. Federal Reserve rate cut in September, which may benefit rate-sensitive and cyclical sectors, such as housing and construction. Additionally, the second-quarter earnings season is also well underway, and expectations for “tech” have left little room for disappointment. Unfortunately, updates from a few high-profile tech companies were not well received by investors. The concern has not necessarily been the earnings reports themselves, but rather the significant sums being spent on artificial intelligence-related research and development, and growing scrutiny around the future returns on those investments. Below, we take a closer look at the other “big” story: the U.S. elections.
Financial markets have not responded too strongly to the historic events that have unfolded in Washington over the past few weeks. However, the appointment of Vice President Kamala Harris as the Democratic nominee, set to be made official at the party’s national convention next month, has introduced new uncertainty with respect to the outcome of the November elections.
Markets tend to focus on policy and priority differences among the parties, the likelihood of meaningful legislation being passed, and any potential impact on the country’s growth and fiscal position. While the potential President-elect understandably gets the lion’s share of media attention, congressional elections are also important. The U.S. Congress is deeply involved in making new legislation and changing existing ones, and the president must sign its bills in order for something to become law. Therefore, Congress shares authority over financial and budgetary policy and national defense, among other federal government functions. It also has extensive investigative powers over government agencies that the president controls and can initiate special inquiries involving the president and other officials.
Currently, of the two chambers of Congress, the Democratic party controls the Senate, and Republicans control the House of Representatives, both with razor-thin margins. This configuration is often referred to as “gridlock” or “divided government” because passing meaningful legislation becomes more challenging, as laws must pass both chambers and be signed by the president to be enacted. Gridlock has been much more common in recent decades. Since 1953, one party has controlled both chambers of Congress and the presidency only 37% of the time, compared to 85% of the time from 1900-1952.
We will be paying close attention to the elections to get a better sense of any major policy shifts and their implications for future growth and government debts and deficits. Given the unpredictable nature of the election thus far, it is premature to make any real assessments at this juncture. We will follow up as we gain greater clarity. In the meantime, we continue to digest the earnings season that is taking place and expect to offer some takeaways in the near future.
Wealth Management
Canada Pension Plan is an important part of your retirement planning/income.
CPP is contributory, if you’ve worked in Canada and made contributions, you will qualify for CPP retirement benefits. If you have maximized contributions throughout your working years, at age 65 you would be eligible to receive $1364/month. You can take CPP as early as age 60, but you would have a reduction in the amount received by 36%. Today the maximum amount at age 60 is $873/month. The reduction amount is 0.6% /month prior to age 65.
Generally speaking, it is best to wait to age 65 to apply for CPP. I have attached an article with more details. Note people can find their own CPP entitlement on My Service Canada. https://www.canada.ca/en/employment-social-development/services/my-account.html
Our firm recently published an article on the power of dividends.
Some highlights;
*Don’t overlook dividends, over the past 50 years, dividend income has contributed an average of 32% to the TSX composite total return.
*Flexible strategies – dividend paying stocks offer strategic versatility and have historically performed well compared to the broader market with lower volatility.
*Desirable attributes – an allocation to companies that demonstrate a firm commitment to consistent and /or growing dividend payments through all market conditions potentially allow investor capture coveted characteristics including stronger profitability and earnings quality.
*Approach from strength – selecting companies with strong fundamentals, valuations and balance sheet strength, cash flow generation, historical and forecast dividend growth rates.
Client events
Market update client event planned for Thursday September 19. If interested, please contact me.
In the Community
I am organizing an office team to participate in the RBC Run For the Kids.
This event raises money for the Family Navigation Project at Sunnybrook, an innovative program that connects young people struggling with mental illness and addiction to get the help they desperately need. The official run is held in Toronto on Saturday September 21 but our office is running/walking it on Monday September 16th in Whitby. If you are interested in joining our group, please email me.
If you wish to donate to this cause here is the link:
RBC Race for the Kids Toronto: Ms. Karen Robertson - RBC Race for the Kids (convio.net)
Note - our office and the TSX / U.S. markets are closed on Monday August 5th.
Happy Natal Day!