Gravitas: Mood Change

November 17, 2023 | Michael Newton


The Newton Group Insights

Investing certainly got a lot more pleasant this month. The market’s mood has changed dramatically. In late October, the S&P 500 fell eight times in nine trading sessions. After that, it rallied eight days in a row—and it’s continued to rally since then. The index is now at an 11-week high. On Tuesday, thanks to a restrained inflation report, the stock market gapped up nearly 2% in one day. Over the last 14 sessions, the S&P 500 has gained 9.5% and bonds have rallied between 2% on the short end and almost 7% on the longer end. The major reason for the recent rally is that Wall Street had convinced itself that the Federal Reserve is all done with hiking rates this cycle. In fact, investors now expect the Fed to start cutting rates in less than six months. The biggest negative in the month has been oil prices. It wasn't too long ago that many were talking about triple-digit oil prices, but things have since been going in the opposite direction. The US benchmark West Texas Intermediate has now fallen into a bear market, tumbling more than 20% from its last high of $95 at the end of September. A drop of 5% on Thursday to under $73 a barrel cemented the new milestone, setting up oil for its fourth weekly loss. Our portfolios remain very strong, well-diversified and are situated for a prolonged rally into year-end.

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

Portfolio Notes

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

(+) Home Depot (HD-US) Shares of the home improvement retailer jumped after the company posted third-quarter earnings and revenue that beat expectations. Home Depot’s quarterly sales declined 3% from the year-ago period and the company narrowed its full-year guidance, however. Owned in Core and US Portfolios.

(+) iShares Core MSCI Emerging Markets ETF (IEMG-US) Ray Dalio’s Bridgewater Associates LP, the world’s largest hedge fund, is leaning on exchange-traded funds for cheap, broad market exposure, according to the firm's latest 13F filings. Bridgewater, which manages $124 billion in assets, has revealed that is has a new 5.5% weighting in the same ETF we have owned since the first quarter. Owned in Core Portfolio.

(+) NICE Ltd (NICE-US) Shares surged after Q3 Non-GAAP EPS of $2.27 beat by $0.12. Revenue of $601.3M (+8.4% Y/Y) beats by $6.52M. The Company increased full-year 2023 Non-GAAP total revenues to an expected range of $2,359 million to $2,379 million, representing 9% growth at the midpoint compared to full-year 2022 vs. consensus of $2.36 billion. The company expects full-year 2024 cloud revenue growth of at least 18% year over year. Including synergies from LiveVox, they expect 2024 EBITDA to be nearly $900 million and to exceed $1 billion in 2025. NICE is the worldwide leading provider of both cloud and on-premises enterprise software solutions that empower organizations to make smarter decisions based on advanced analytics of structured and unstructured data. NICE helps organizations of all sizes deliver better customer service, ensure compliance, combat fraud and safeguard citizens. Over 25,000 organizations in more than 150 countries, including over 85 of the Fortune 100 companies, are using NICE solutions. Owned in US Portfolio.

(-) Palo Alto Networks (PANW-US) reported strong results for the first quarter of its fiscal year 2024. But the stock was down on management’s decision to lower its full-year billings outlook. The company said the revised guidance was a result of higher borrowing costs, while reiterating it has seen no change in demand, the pipeline of future deals or close rates over the past three months. As such, we see the pullback as potential buying opportunity. Owned in Opportunity Portfolio.

Weekend Reading

Ontario leads Canada’s housing market cooldown Demand-supply conditions in nearly half local markets (including the Greater Toronto Area, Hamilton, Niagara, Barrie and Kingston) now favour buyers outright. RBC

How to confront uncertainty in your strategy In running a business, there are many elements that you just can’t control—the fate of the economy, political events, your competitors’ actions. Yet uncertainty is rarely accounted for in a clear and robust way in the strategy room. MCKINSEY

The Battle Against Inflation is Far From Over Looking ahead into 2024, we believe inflation will gradually ease, driven by slowing housing and oil prices and a softening of the labor market. However, the road to the Fed's 2% inflation target will be long and hard and will likely result in Fed Chair Jerome Powell having to keep his foot on the brakes and let the US economy take a short-term hit. TRUFLATION

Time's best inventions of 2023 200 innovations changing how we live. TIME

The Illusion of Security in Investing Our tendency to underestimate risk due to its infrequent occurrence, leads us to a dangerous false sense of security. NIVESHAK

Manulife’s Forest-Fund Gambit Luring Investors The largest manager of natural capital closed its first of what it hopes will be many funds that will buy and plant forests, with a carbon credit market twist. INSTITUTIONAL INVESTOR

Canadian CPI data in center stage in the week ahead Canadian CPI data will be watched closely (including by Bank of Canada officials) in a week that will also include the federal government’s fall economic update and (we expect) more signs that the consumer spending backdrop is softening. RBC ECONOMICS


"I hate that word conviction, because conviction goes with arrogance.”

– Aswath Damodaran