A few topics our newsletter touches on this week:
- Our Thoughts: The Rise of Value Stocks
- What we’re watching: Strong Results from Canadian Banks
- Financial Health Check-up
- New – USD GICs
- Interesting Reading/Listening: Disruptors, Global Insight Monthly, Tax Guide 2020
- Distraction Content: Games over Video
Our Thoughts: The Return of Value Stocks
The Market: Equity markets rallied again in February, continuing the rebound from the initial days of the pandemic, with notable performance from value names that had lagged during 2020's year-end rally. The value outperformance reflects the expectation that post COVID these businesses will fare well and their discounted valuation disappear. Interestingly, this bodes well for Canadian stocks that in general have a value tilt. Investors continue to be on edge about rising bond yields, which moved higher yet again last week despite U.S. Federal Reserve Chairman Jerome Powell’s comments that inflationary pressure would be unlikely to change their approach around interest rates.
By the numbers (January): The TSX jumped 4.4% while the S&P 500 rose 2.5% (2.8% in US dollars). Europe, Australia & Far East index (EAFE) was also up 1.8%. The Canadian bond universe was down 2.5%.
What we are watching: Strong Results from Canadian Banks
The results unveiled two predominant themes. First, the credit issues that arose at the onset of the pandemic last year are now subsiding. Each bank reported significantly lower than expected provisions for credit losses. These are capital cushions of sorts that the banks set aside to absorb future losses from loans that consumers and businesses may struggle to repay. As banks believe they are adequately prepared and begin to anticipate lower future losses, they tend to provision less, and may even release and redeploy this capital. The second theme that was apparent from the results was the stronger than expected revenue growth across many business lines of the Canadian banks: commercial and retail banking, capital markets, and wealth management for example.
On the dividend front, we expect key regulators to consider lifting the restrictions on bank dividend increases, potentially by the end of the year, paving the way for mid-single digit dividend growth to resume over the next few years. Investors should be left feeling more confident in this sector, particularly with valuations that remain inexpensive.
Financial Health checkup: With so many of us housebound due to COVID, it’s a good time to revisit your financial planning goals and will & estate planning. If you would like to book a consultation to discuss updating your plan please reach out to book a meeting. We are available for client calls by phone or Webex video conference.
New – USD Guaranteed Investment Certificates (GICs)
Starting March 1st, 2021, investors can now purchase CDIC insured GICs for their US-denominated side of their portfolio (previously USD GIC’s were not CDIC insured). Note that CDIC coverage limits are per issuer and regardless of currency, so we would have to consider your combined (USD & CAD) holdings in the issuer to ensure you are not above the limit. If you want to discuss further, please call one of your advisors (Mark, Sarah or Peter).
Interesting Listening/Reading
- Disruptors – a great, dynamic ~30 min RBC podcast hosted by SVP John Stackhouse about re-imagining Canada’s economy in a time of unprecedented change.
- Recent episode covers Improving Inclusivity in the Tech Sector
- Find it wherever you get your podcasts (Spotify, Google, Apple, Simplecast).
- To check out our Global Insight Monthly, find the link on our website here. You can also view the weekly/daily editions on the same page.
- Tax Reporting Guide 2020: This handy guide summarizes important dates and required tax information to help you prepare your annual tax return. Click here to access the guide.
Distraction Content: Games over Video
Over the last year, we have all had plenty of practice on how to have a catch-up call over Zoom/Skype/Facetime/etc. This article includes a great list of games you can play with friends and family (or co-workers!) over video chat. The article author’s plug their own platform but link to plenty of others as well which are a mix of free and premium options e.g. Head’s Up!, Pictionary, Jackbox games, etc. If you like card games, and miss playing them together, click here for a great website that allows for virtual Euchre/Hearts/Whist/Bridge tournaments.
Our team is here for you
Regards,
Mark, Peter, Sarah, Corinne & Andrea
Gallivan Wealth Management Team