A few topics our newsletter touches on this month:

• Our Thoughts: Market Rally Broadens
• Midyear Outlook 2023
• Other Links: Disruptors podcast, Global Insight (monthly)

The global equity rally that began last October persisted in July on the back of resilient U.S. economic data and sentiment that the Fed could soon end its historic rate hike campaign. That rally has been led by technology stocks regaining their footing this year after a dismal 2022. We have previously highlighted the breadth of the rally as a key factor in judging its sustainability - but even if the 7 “mega-cap” tech stocks are excluded, the U.S. equity market has still posted solid gains YTD. Encouragingly, there have been recent signs of broadening market strength as other sectors and groups of stocks are appreciating in price. This is a healthy sign in our view.  

Although the market appears to be following the Fed’s lead in anticipating a “soft landing” for the economy rather than a deep recession, we feel investors should stay focused on high-quality businesses with resilient balance sheets, sustainable dividends, and business models that are not intensely sensitive to the economic cycle.

Much of the North American economy’s resilience to date stems from a strong employment backdrop. Consumer demand, particularly for services, continues to be strong despite elevated interest rates and prices, thanks to plentiful jobs and rising pay. Emerging signs suggest companies who were recruiting intensely just a few years ago have shifted their plans. Some have taken things further by announcing layoffs. We expect this trend may persist and potentially lead to broader deterioration in the employment picture as more interest rate increases work their way through the economy. This could strain consumer demand and force more companies to recalibrate their workforce. In other words, the pendulum of job creation may be beginning to swing the other way, albeit slowly. For these reasons, we maintain a cautious approach in managing our client portfolios and are patiently waiting to take advantage of opportunities as they arise.

Should you have any questions, please feel free to reach out.

By the numbers (July):  The TSX was up 2.6% and the S&P 500 was up 2.8% in Canadian dollars. The Europe, Australia & Far East index (EAFE) was up 2.8%, while the Emerging Markets index was up 5.4%. The tech-heavy NASDAQ was up 3.7% as well in Canadian dollars. The Canadian bond universe was down 1.1%

Midyear Outlook – Global Insight

In this year’s issue…

• Rallies, recessions, and realistic thinking – The S&P 500’s surge over the past nine months doesn’t feel to us like the start of a new bull market, but rather like a recovery rally.
• The “year of the bond” hasn’t been much of a year at all – While it has been an underwhelming year for bonds, yields have rarely appeared more attractive and we look at what this spells for investors.
• U.S. recession scorecard update – The strong May payrolls report did not stop the unemployment rate from surging to its highest point in this cycle. Our overall analysis of leading economic indicators continues to suggest a slowdown is approaching but the date keeps getting moved out.
• Regional commentary – Our regional analysts present their views of equity and fixed income markets, currencies, and commodities, as well as how to position portfolios.

Other Interesting Listening/Reading

• Disruptors (Season 5) - A dynamic ~30 min RBC podcast co-hosted by John Stackhouse and Trinh Theresa Do about reimagining Canada’s economy in a time of unprecedented change.
  • Reboot of “AI Helped Produce This Episode"
  • Olivier Desmarais: How Canada Can Win In A Net Zero World
• To check out our Global Insight Monthly for June find the link here.

Regards,

Mark, Peter, Sarah, Corinne and Nathalie

Gallivan Wealth Management

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