To my clients:

It was a down week for North American stock markets with the Canadian TSX falling 0.4%; the U.S. Dow Jones Index falling 0.5%; and the U.S. S&P 500 falling 0.3%.

Despite a week away from the office, little on the macro front has changed since my last update two weeks ago: trade concerns remain front and center, with completion of a Phase 1 deal between the U.S. and China tantalizingly close, yet still awaiting final signatures; economic data continues to suggest a trough was reached in the late summer/early Autumn; and stock markets remain resilient, with all major indices at, or near, all-time highs.

Against this backdrop, I have little to comment upon this week, so I will instead note a modest portfolio adjustment that was made. A small amount of our position in Apple (for most clients, an amount roughly equal to 1/5th of the position) was sold so as to take profit in the best performing portfolio holding so far in 2019. Ostensibly this move was made to simply pare the position in Apple back to its intended target weight in portfolios. I still like Apple and intend to keep it as a core holding in client portfolios. But of late, there was an outsized and sharp move higher in the share price, and it seemed prudent to capture some of these profits. At least in the very short term, the timing has proved advantageous, although in the medium to longer term I, and the RBC analyst, expect the share price to grind higher.

With the proceeds from the sale of this small portion of our Apple shares, I began a position in the regulated Canadian utility Fortis. Utilities, especially regulated utilities, tend to fare better than average during difficult times (in other words, during times of recession). While I don’t anticipate reducing our equity (i.e. stock) exposure much more at present, and instead suspect that the next move might be to add a small amount of equity should economic data continue to improve, I nonetheless wish to begin the gradual process to shift whatever equity holdings we do maintain to a more defensive posture over time. I have long maintained that my and RBC’s base case is that recession will be avoided in the immediate future, but it remains the case that we are very likely closer to the end of this long (over 10 years) economic cycle than the beginning. Might there be several years left in this cycle? Possibly, and perhaps probably, yes. Especially given the fact that this economic expansion has been much shallower than the average of the past 100 years, and an argument can be made (which I at least partially subscribe to) that the slower rate of growth will be offset by a longer duration of time… the slower for longer argument. But eventually and inevitably, recession will take hold, and I judge that we are at a period of time where we should begin peripherally preparing for this ultimate eventuality.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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