To my clients:
Announcement: as of August 13th, I will be leaving for a two week holiday. I’ll be back in the office again on August 30th. Next Friday’s update will be my last before resuming again on September 3rd. I’ll be connected while away and will, of course, monitor events as warranted. As always, reach out to Brenda for any pressing needs while I am away.
It was an up week for North American stock markets with the Canadian TSX finishing up 0.9%; the U.S. Dow Jones Index up 0.8%; and the U.S. S&P 500 up 0.9%.
Despite rising Delta cases, economic data and corporate profits continue to reveal a strong expansion of the economy. As I noted in last week’s update (Will the Delta Variant Derail the Economy? I Think Not), Dr. Scott Gottlieb – who has an exceptional track record of forecasting the path of the coronavirus – has suggested that the peak in U.S. Delta cases is imminent. So, if Dr. Gottlieb’s forecast is accurate, there may soon be some respite from the worrisome rise in covid numbers. More to the point, I also noted last week that I don’t think the Delta variant itself will stop the ongoing economic expansion. BUT, I admit to one significant concern: the more Delta continues to proliferate, the more opportunity it will be given to mutate into a new, possibly more worrisome, variant. As I’ve long maintained, it is the threat of the emergence of a vaccine-immune variant that is the real economic (not to mention humanitarian) concern from my perspective. Thankfully, vaccines work against Delta.
On the economic front, the big three economic indicators were released this week. ISM Manufacturing declined from the previous month and also missed expectations. But at 59.5, it remains near peak levels of the past 30 years. The ISM Non-Manufacturing Index (aka “Services”) at 64.1 blew past expectations and came in at yet another all-time high for the metric; and today the monthly Employment Report revealed nearly 1 million new U.S. jobs added in the month of July (specifically, 943,000). Collectively, these three indicators are about as strong as I have seen in my career.
And, reiterating and updating comments made in my update from two weeks ago (Corporate Earnings Poised to Hit New Record), corporate profits are increasing at a blistering pace: +93% year-over-year! analyst expectations were for a “mere” 65% increase. Granted, the obvious caveat is that this rate of increase is in comparison to the depressed levels of one year ago. But, it’s is very much worth noting that current Q2 profit levels are a full 24% above the pre-covid Q2 levels from 2019.
As always, absent the realistic threat of recession, equities (i.e. stocks) should be given the benefit of the doubt. Recession is nowhere in sight. Accordingly, portfolios are, and will remain, overweight equities for the foreseeable future.
That’s it for this week. All the best,
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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