| A few topics our newsletter touches on this month:
Our Thoughts: The November bounce (plus spotlight on Canadian banks) The month of November finished on a high note, marking one of the best months this year for global equity and fixed income markets. This strength reflects growing confidence that inflationary pressures are easing, central banks are largely finished with their rate hikes, and economic growth is moderating in an orderly fashion. The Canadian banks also reported. Throughout the year, expectations for the Canadian banking sector have been overwhelmingly negative. That helps to explain the group’s weak stock performance year-to-date. The anticipated turn in the credit cycle is a key factor, with a growing number of households and businesses expected to struggle with debt repayments as a result of higher interest rates. This quarter’s bank earnings suggest the turn in the credit cycle has been gradual compared to some investors’ expectations, suggesting consumers and businesses have, on average, weathered higher interest rates as well as can be expected so far. Commentary from management teams painted a picture of reserved optimism. Banks are bracing for a continued deceleration in growth as higher interest rates continue to work their way through the economy. Management teams acknowledged the wave of mortgage refinancings that are expected to intensify over the next few years. But the impact may not be as painful should interest rates start to come back down over the next few years, as the market is forecasting. Regardless, the banks believe they are prepared to weather the storm, as they have in the past. They have bolstered their balance sheets by allocating increasing amounts of capital to their reserves and have also started to make progress towards containing costs, which should further strengthen future profitability. Overall, we see the bank results this quarter as middling, but since their stock prices already reflected deeper concerns their results spurred a stock market rally. The banks have demonstrated a level of prudence as they prepare for a range of economic scenarios that could develop. Pressures are indeed likely to mount, but these headwinds are still reflected to some degree in their valuations. In RBC’s view, the banks reflect the broader economic issues that exist in Canada. Namely, growth is sluggish, but not terrible. Higher interest rates remain a headwind for the foreseeable future; therefore dividend yields will play an increasingly important part of future returns. We continue to be patient and vigilant with the Canadian equity allocation of portfolios as we navigate through a challenging but manageable outlook for our domestic economy. By the numbers (November): The TSX was up 7.5% and the S&P 500 was up 6.7% in Canadian dollars. The Europe, Australia & Far East index (EAFE) was up 6.6%, while the Emerging Markets index was up 5.4%. The Canadian bond universe was up 4.5%. The US Dollar declined 2.2%. Interesting Listening/Reading
Happy Holidays from the Gallivan Wealth Management team. Pictured left: Sarah’s dog Bella dressed for the cold. Pictured right: Corinne’s desk decked out for the holiday season.
Regards, Mark, Peter, Sarah, Corinne and Nathalie Gallivan Wealth Management |