THE END OF GROUNDHOG DAY
Groundhog Day was February 2nd, and Punxsutawney Phil of Pennsylvania, “that Seer of Seers, Sage of Sages, Weather Prognosticator Extraordinary,” emerged from his burrow and saw his shadow – meaning there will be six more weeks of winter. Giving us hope is that one of Phil’s most prominent Canadian colleagues, Wiarton Willie, didn’t see his shadow, and hence predicts an early spring. For his part, Quebec’s Fred la Marmotte made international headlines, for the unfortunate reason of dying before he could make his prediction. I am not sure what that means for the weather.
But I do know that the term “Groundhog Day” has taken on very different significance due to the 1993 film of that name, starring Bill Murray and Andie MacDowell. Many people now think of the term as shorthand for something that repeats over and over – and here in my world, every year at this time, many non-clients look at their taxes and wonder if they are paying too much, and if financially they should be doing better overall. Many take stock of their situation and realize they are not doing as well as they could be.
And then our phone starts to ring. From individuals seeking our advice, from accountants whose clients are interested in our opinion, and from current clients who’d like to refer someone they know to us – someone close to them who wants a new perspective on their investments and overall wealth plan.
Do you know someone who should be talking to us? Unfortunately, many people who could be doing better will be unsure of what steps to take, placing themselves in a Groundhog Day cycle of their own. But there is a way to break free: we would be happy to hear from you, or them, and as always will provide a complimentary view on their situation, with absolutely no cost or obligation.
OFF TO A GOOD START
As we reported in the January edition of Marche Monthly, the markets are off to a good start in 2023. And our clients are off to an even better one. The S&P 500, which we consider the authoritative indicator of the markets overall, was up 6% in January – and after a decline in February, is still up 4% on the year. That said, our clients are outperforming the market, being up 6%, even with the gains we effectively gave back in February. And so, we are still on track to deliver above average returns this year, just as we have now for several years running.
Why the decline in the markets? It has to do with inflation, which is “stickier” than expected, driven by the ongoing war in Ukraine, now sadly at its one-year anniversary.
A YEAR OF WAR
If we were to remove oil, gas and grocery prices from inflation calculations, inflation would almost be at an historically normal level. That’s how “sticky” prices are for those things, given that people have to eat, and are very reliant on their cars, especially in the United States, where public transit in many cities tends to be limited.
The war in Ukraine, which began last year with the Russian invasion on February 24th, is a key driver of these stubbornly high prices (the US inflation rate in January, 6.4%, was slightly higher than expected). Sanctions on Russia have prompted an increase in prices of basic items such as oil and cereal. Russia is a major supplier of oil, gas, and metals, and, together with Ukraine, of wheat and corn. Reduced supplies of these commodities had driven their prices up sharply. We have seen a pullback in the prices of these commodities recently but that could take several more months to be reflected in places such as the grocery store.
Stickier inflation puts downward pressure on stock prices, in part because central banks raise interest rates to combat inflation, and higher interest rates increase companies’ cost of doing business, which can cause them to slow their growth initiatives. This can make their stock less attractive in some investors’ eyes, hence the potential decline in stock price.
And so there is a change in our outlook on inflation. With inflation in the US stickier than expected, it looks like higher interest rates will be with us for longer than we thought even one month ago. Now our expectation is for interest rates to again go up, and we do not expect them to start going down until 2024, instead of late 2023.
All of that said, our clients’ portfolios in this environment are outperforming the market as mentioned, in part because we continue to be disciplined in executing our long-time investing strategy, a key pillar of which is to own companies capable of passing along, to the consumer, the higher prices they must pay in the production of their goods and services. Thus they avoid having to cut their profit margins, and thereby their stock prices remain robust.
SIGN IN THE TIMES
Recently I noticed an article in the New York Times which happens to support our strategy. The story, “Big Brands Keep Raising Prices, With Limited Shopper Resistance,” starts with this passage:
“From soda to soap, consumer giants like PepsiCo and Unilever continue to raise the prices of their products significantly, passing on the higher costs they face, and consumers continue to spend, cutting back only modestly in recent months.
“Prices will continue to rise, or at least remain at high levels, executives said.”
These are precisely the kinds of companies we are constantly on the lookout for – we own many of this type – especially during inflationary times like these. And overall, we will continue to look for ways to upgrade our holdings, to keep delivering the above average returns we have delivered so far.
Given the success of our approach, once again we can announce no plans to make any changes to our strategy, which is detailed here and here.
LAST-MINUTE RRSP CONTRIBUTION?
We have completed our outreach to all clients, to discuss with them any RRSP, TFSA or RESP contributions they wish to make. This is all driven by the deadline for RRSP contributions: March 1st.
If by chance you would like to make a last-minute RRSP contribution, please contact us right away.
HELP WITH TAX TIME
As well, here is a reminder of other important dates coming up:
May 1st: last day to file your 2022 personal tax return without penalty
June 15th: last day to file your 2022 personal tax return without penalty if you are self-employed
And, the last day for filing trust tax is 90 days after fiscal year-end – thus the deadline for most trusts will be March 31st.
To make tax season as simple as possible for you, click for two RBC files: 2023 Handy Financial Planning Facts, and the Client Guide to 2022 Tax Reporting. Have a look if you like, and please do not hesitate to contact me with any questions or discussion points you may have.
KAREN SNOWDON-STEACY
Here at Marche Wealth Management, our clients enjoy an unparalleled depth and breadth of expertise across all wealth management disciplines. When we create and manage your customized wealth management strategy, we engage these elite experts as appropriate, bringing the full gravity of our team to bear.
In the October, 2021 edition of Marche Monthly, we featured our Will and Estate consultant, Alleen Sakarian. I am pleased to say that many of our clients have been taking advantage of Alleen’s expertise. Often, one of the action items after meeting with Alleen is to meet with our Senior Trust Advisor, Karen Snowdon-Steacy.
As a Senior Trust Advisor, Karen works with our clients, whether they be individuals, families or businesses, to provide customized estate, trust and incapacity solutions. Whether it is helping someone to settle an estate, establishing a trust to ensure the successful transfer of family assets, or arranging to assist with the administration and responsibilities for a Power of Attorney, Karen can help. Karen also has expertise and experience in advising on Philanthropic and Charitable Giving strategies for clients who wish to leave a lasting legacy.
A graduate of Victoria University at the University of Toronto specializing in history and political science, Karen has continued to deepen her knowledge and expertise with key industry designations such as Trust and Estate Practitioner (TEP).
With 25 years of experience, Karen is well known within the Estate and Trust industry and delivers well-balanced advice by staying abreast of product, industry, investment, tax and legislative developments. With a career focused on building client relationships, she is dedicated to providing assistance in the preservation, management and transfer of wealth between generations by providing solutions to implement clients’ estate, trust and philanthropic plans.
Is it time for a consultation with Karen? Let us know.
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We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.
Want to discuss any aspect of this month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call or email.
Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated
tyler.marche@rbc.com
1-416-974-4810
www.tylermarche.com
WHO WE ARE
Tyler Marche, MBA, CFP, FCSI – Senior Portfolio Manager and Wealth Advisor
Tracy McClure, CPA, CA, CFP – Financial Planner
Joy Loewen – Associate
Jean Jeevaratnam – Administrative Assistant
Karen Snowdon-Steacy, TEP – Senior Trust Advisor
Steve Mogdan, CPA, CA – Financial Planning Specialist
Andrew Sipes, CLU, CFP – Will and Estate Planning Specialist
Alleen Sakarian, LL.B., TEP – Will and Estate Specialist
**To learn about our unrivalled team of experts, delivering Canada’s widest array of wealth management services to our clients, visit our website, here and here.
WHAT WE DO
