A few topics our newsletter touches on this month:
- Our Thoughts: Tug of War
- Annual RRSP & TFSA Contribution Reminder
- Other Links: Disruptor’s new season, Global Insight, RBC Economics on unemployment rate plus team announcement below
Our Thoughts: Tug of War
The year is still young but is already shaping up to be quite the tug of war. More specifically, a standoff between two forces: pressure on asset valuations as investors anticipate higher interest rates versus the prospects of above average earnings growth.
In early January, investors began to reprice the odds of central banks becoming more aggressive in their approach to combat elevated inflation, which led to a rather weak start to the year. Thereafter, the earnings season began, and positively, investors were reminded that corporate profits remain solid and have the potential to grow at a reasonable clip this year, driven by the services and more cyclical sides of the global economy. Not to be outdone, central banks provided updates that have forced investors to reassess the outlook for interest rates once more.
Meanwhile, the technology sector has been a poor performer to start the year. Much of the weakness can be attributed to the dynamic explained above: the potential for higher interest rates is putting pressure on a sector with elevated valuations. It is no surprise to see the stocks of companies who miss expectations get punished as we have transitioned to a climate where investors are more closely scrutinizing valuations than they have in the recent past.
On the whole, the technology sector still possesses some enviable growth prospects and exposure to powerful secular trends that are not going away any time soon. But, the sector may remain vulnerable until the broader market can get comfortable with the degree of monetary policy tightening that may take place. Ultimately, central banks will need more time to assess inflationary pressures and recalibrate policy, leaving investors to ponder the pace and extent to which central banks may raise rates. With this in mind, our investment approach will remain patient with high conviction holdings and nimble should new opportunities arise, while also ensuring portfolios are adequately diversified in the face of a new interest rate cycle that is getting underway.
By the numbers (January): The TSX was down 0.4% and S&P 500 was down 4.6% (down 5.2% in US dollars). The tech heavy NASDAQ declined 8.5%. The Europe, Australia & Far East index (EAFE) was down 4.3%, while the Emerging Markets index was down 1.4%. The Canadian bond universe was down 3.4%.
Reminder: RRSP & TFSA Contribution Room
If you have not discussed this with us already, please let us know if you are planning on making a contribution and indicate whether it will come by cheque/online transfer or if you want us to move money between your DS accounts. Reminder that 2021 RRSP contributions must be made by Tuesday, March 1st.
Interesting Listening/Reading
- Disruptors – a dynamic ~30 min RBC podcast, trailer for new season here, new episodes drop weekly on Tuesdays.
- To check out our Global Insight Monthly for January find the link here
- RBC Economics “Forward Guidance: Our Weekly Preview” This week touches on Omicron’s potential impact on the unemployment rate.
Team announcement: Peter will be taking 8 weeks of parental leave (mid-Feb to mid-Apr) to care for his son Xavier as wife Breanne (see family picture, left) returns to work. If you would like to have a review with an advisor in the meantime you can reach out through Corinne to book a review with Mark or Sarah.
Please do not hesitate to reach out to any member of our team to discuss your portfolio or financial plan.
Mark, Peter, Sarah, Corinne & Nathalie
Gallivan Wealth Management Team