To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing down 0.8%; the U.S. Dow Jones Index up 0.4%; and the U.S. S&P 500 up 0.3%.
More focus on stocks, companies and earnings this week, and less on economics…
This week, with a very strong surge in price of a core portfolio holding, I trimmed United Health Group back to a target weight in client portfolios and added to either AT&T or the S&P 500 ETF units (S&P 500 for a couple of clients who have restricted ownership of AT&T in their portfolios). A broader portfolio rebalance as well as tax loss harvesting (where applicable) looms before year end.
More broadly speaking, corporate earnings have been on the rise ever since economies began to reopen over a year ago. Since then, research analysts that track companies very closely have largely been raising their quarterly earnings estimates for most stocks, driven by broadening economic momentum. But, that trend started to change a few months ago, with the pace of upward revisions to earnings estimates slowing markedly. In other words, expectations heading into this quarter’s earnings season were relatively low, largely as a result of the widely publicized global supply chain constraints.
Nearly half of the earnings season is now complete. Encouragingly, results reported thus far have been good enough, and have served to reassure investors. More specifically, many companies have indicated that demand has been strong and that backlogs (indicative of future sales) are also healthy. But, several companies made it abundantly clear that the availability of materials and the logistical infrastructure required to move supplies and product is facing significant strain. Moreover, many of them are finding it increasingly more difficult to attract and retain workers.
At the very least, some of these supply issues should get resolved over time. Factories forced to shut down are still in the process of reopening. Meanwhile, capital expenditures are ramping up in areas like the semiconductor industry which should eventually alleviate the stress on chip supply. And transportation bottlenecks may eventually improve as the trucking, rail, aviation, and shipping industries are working on a host of measures to hopefully ease the high levels of congestion at ports and railyards. It will undoubtedly take time, but these supply chain issues are not insurmountable.
Overall, the third quarter earnings reports have been met with a sigh of relief from most investors. But they also confirmed that the supply-related pressures that have been so well documented of late are meaningful, and likely to persist to varying degrees next year. It is something I will continue to watch closely given the implications for central bank policy (i.e. interest rates) and corporate earnings, both of which underpin my, and RBC’s, positive bias towards equities (i.e. stocks). As such, client portfolios remain overweight the equity target set in each client’s individual Investment Policy Statement.
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
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
Visit Our Website: www.nickscholte.ca
We accept new clients primarily by referral from our existing clients. If you have family or friends who would be a good fit for our specialized wealth management services, please let us know.
Any recommendations herein are for the exclusive use of clients of RBC Dominion Securities and Investment Advisor Nick Scholte. Any other direct or indirect recipient of this email should consult with his/her own licensed investment advisor prior to implementing any investment action he/she may be contemplating.