As widely expected, The Bank of Canada held the overnight rate unchanged for a 6th straight policy decision in April but is gaining confidence that inflation is on a sustainable path back to the 2% target. But we must keep the BoC and the Fed separated as they are now on different paths. A resilient U.S. economy and signs of reacceleration in inflation look likely to derail Fed plans to cut interest rates by 75 basis points this year. RBC Economics is now looking for just one 25 basis point cut in December. The Bank of Canada, though, still looks on track to cut rates in June. Beyond then, the monetary policy gap will widen with the BoC cutting deeper than the Fed. That’s also against a widening macroeconomic growth and labour market gap in Canada versus the U.S. Governor Macklem was careful not to suggest a cut is imminent quickly, but also did not dismiss the potential for a cut at the next policy meeting in June. The BoC will get two additional monthly inflation reports, and one more monthly labour market report before the next scheduled policy decision and our own base case assumes a 25-basis point cut in June.

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

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Apple (AAPL-US) A breakout in its shares has occurred on schedule and should be helpful to US stock indices in the weeks ahead. Apple made its biggest positive move in 11 months this week, rallying to the highest levels since mid-March. In the March 29th Gravitas report, I discussed why this stock might be close to bottoming. This week Apple broke back above a very significant trendline which had been trending down since January. Technically, if Apple can reclaim $183.50, one can be more assured that a more intermediate-term bullish outlook is possible. Owned in Core, ESG+, Cash Flow and US Portfolios.

(+) Constellation Brands (STZ-US) gained after the beverage company behind Modelo beat fourth-quarter expectations, saying its beer business is outperforming. Constellation Brands posted revenue of $2.14 billion, topping the $2.10 billion anticipated by analyst. The beer business easily outperformed the broad U.S. beer market during the quarter as the company took market share. The wine and spirits business saw a 6% decline in sales during the quarter. The company pointed to unfavorable marketplace dynamic that pressured volume. The operating margin fell by 220 basis points to 25.5% of sales for the wine business. Owned in Core and ESG+ Portfolios.

(+) Costco Wholesale (COST-US) Sales jumped nearly 10% in March compared with a year ago, giving the stock a modest lift. Net sales jumped 9.4% year over year to $23.5 billion, accelerating from February’s 6.9% rise. Same-store sales—a key metric for retailers that measures sales in stores open for more than a year—rose 7.7% in March. This also marked faster growth from February, which saw same-store sales increase 5%. The board of directors increased the company’s quarterly dividend by about 14% to $1.16 per share from $1.02 per share. Owned on Core and ESG+ Portfolios.

(-) JPMorgan (JPM-US) The bank slipped despite beating expectations on both lines and reporting lower credit costs than anticipated. However, the bank said net interest income, a key measure of what it makes through lending activities, could be somewhat short of what Wall Street analysts are expecting in 2024. CEO Jamie Dimon also warned about persistent inflationary pressures weighing on the economy. Owned in US Portfolio.

(+) Spotify (SPOT-US) is working on a feature that allows subscribers to mix tracks and change speeds on playback -- a DJ-like feature designed to cater to its young, social-media-savvy users, the WSJ reported. Users in their teens and 20s already deploy favorite music (cut, spliced, sped up and slowed down) to accompany a pursuit of viral videos on services like TikTok and Instagram Reels. Spotify is looking to deepen engagement with those users while ensuring that artists and music labels are compensated for such usage, according to the report. Artists seeking compensation are increasingly releasing multiple versions of their own songs (at additional speeds) to satisfy the demographic's demand for variety. Owned in Opportunity Portfolio.

(+) Taiwan Semiconductor (TSM-US) The world’s largest chipmaker reported that revenues rose by nearly 20% during the first quarter, higher than analysts’ expectations. Revenues increased by 34.3% year on year in March, the fastest pace since November 2022. The Taiwanese company is benefitting from growing interest in chips designed to train and run artificial-intelligence software, offsetting weak demand in the smartphone market. In addition, it was announced that TSMC will increase its total investment in the US from $40 billion to $65 billion by adding a third chip factory to the manufacturing complex it began building in 2021 in Phoenix, Arizona. Under the 2022 Chips Act, the U.S. will grant the company up to $6.60 billion in grants and $5 billion in government loans to support Its expansion efforts. Owned in Cash Flow and Opportunity Portfolios.

(+) VanEck Rare Earth/Strategic Metals ETF (REMX-US) has many top tier rare earth, lithium and other strategic metals companies in its portfolio. we have done well on this newer position having only owned it for 2 months and up about 20% in that timeframe. This ETF is down about 37% in the past year, and it is down around 31% in the past 3 years. Much of the poor performance has been due to the declining price of lithium as well as rare earths. For example, lithium prices are down by about 80% from the 2022 highs. However, lithium and rare earth prices might be poised to rebound and that could make this ETF turn in much stronger returns over the next couple of years. Because of China's weaker than expected economy and other factors, the prices of rare earth elements have been declining and this has put significant pressure on many of the holdings in this ETF. While the performance has not been good in recent years, the long term story remains strong. Lithium is used in batteries for electric vehicles, and rare earths are used in many industries, including military, technology, automotive, and renewable energy. Many of these industries are likely to see significant growth in the coming years which could drive demand and raise prices for lithium and rare earths. Owned in Opportunity Portfolio.

(+) Vera Therapeutics (VERA-US) The biotech stock jumped more than 30% this week following the announcement of a competing Vertex/Alpine deal. Both Alpine and Vera have drug candidates that potentially treat a kidney condition, IgA nephropathy. Alpine Immune Sciences soared amid a report that the biotech firm is weighing its options after receiving takeover interest. Owned in Opportunity Portfolio.

Weekend Reading

RBC MacroMemo - April 9 - 22, 2024 Strong data / Why no recession? / Baltimore port / U.S. firms and interest rates/ Who rules global economy? / Tricky inflation / Central banks / Assorted Canada RBC GLOBAL ASSET MANAGEMENT

The Great Rebuild Seven ways to fix Canada’s housing shortage. RBC ECONOMICS

7 Abandoned Buildings We’d Like to See Fixed Up From mysterious prefab homes to secret subway stations, these properties offer incredible potential. ARCHITECTURAL DIGEST

Hit Them Where They Ain’t Growth stock investing appears to have the popularity of home run hitting. SMEAD CAPITAL

Everything you want is on the other side of “worse first” Worth 30 minutes. Great for teens too. “How to Live an Asymmetric Life,” Graham Weaver lecture at Stanford Business School. MOONTOWER

The record-breaking Gordie Howe International Bridge The enormous megaproject spanning the Detroit River between Detroit and Windsor is nearing completion. YOUTUBE

Resist the Machine Apocalypse by Iain McGilchrist Leaving nuance aside, and condensing three decades of research and a vast body of supporting evidence into a phrase: We are now mesmerized by the least intelligent part of the human brain. FIRST THINGS

INVESTOR LETTERS:

Jamie Dimon sounds off When he talks, people tend to listen. And this time around, he had a lot to say. Artificial intelligence was mentioned positively, but the letter also came with a fair bit of skepticism about the state of the world. JP MORGAN

Amazon CEO Andy Jassy’s 2023 Letter to Shareholders In his letter he says he is committed to cost cutting while investing in AI. AMAZON

Ken Griffin’s 2023 Year-End Letter To Investors Citadel CEO Ken Griffin says politicians spending ‘at the expense of future generations’ as US debt hits new heights. CITADEL