To my clients:
A reminder that I will be away on holiday two of the next three weeks – next week, and the week of August 29th through September 2nd. There will be no client updates either week. I will be connected while away and will, of course, monitor events and act if necessary. As always, Brenda will be available to handle urgent client needs.
It was an up week for North American stock markets with the Canadian TSX finishing up 2.9%; the U.S. Dow Jones Index finishing up 2.9%; and the U.S. S&P 500 finishing up 3.3%.
Having recovered approximately 50% of the losses since the start of 2022, market indices have no doubt staged a strong recovery since the end of June. The question is, of course, can this trend can continue? I suspect yes. Perhaps not enough to eradicate all YTD losses to turn a losing year into a winning one, but I do believe further recovery from here is possible…
Keep in mind that markets are “forward looking”, meaning that markets anticipate the likely path ahead some 9 months out (+ or - a few months). Of course markets don’t always map this path accurately, hence the ebbs and flows or, worse, the extreme volatility in prices as we’ve seen much of this year. Nonetheless, markets do their best with the information at hand. This week saw a pair of nice inflection points in both consumer and producer inflation readings. While still egregiously high, the headline Consumer Price Index at 8.5% and the Producer Price Index at 9.8% both slowed substantially from the prior month’s reading (these are the year-over-year readings… some of the month-over-month and “core” readings were even more encouraging). Given that a) higher interest rates have yet to work their way fully through the economy; b) commodity prices (like oil and gas and more) continue to decline; and c) supply chain bottlenecks appear to be easing, the notable turn in inflation readings this week looks sustainable.
But after four consecutive weeks of strong market gains, I’d be remiss not to point out that trees don’t grow to the sky, nor do markets go in a straight line up. Some slow down or give back is inevitable at some point along the way. I’d encourage clients to try to look through such setbacks when they occur.
As a final note, I executed a sale in discretionary client portfolios this week. A core holding in Capital Power was sold at $50.58/share given its strong price appreciation (up over 28% year-to-date) at the time of sale, but more importantly it had surpassed our analyst’s target price of $50/share. For the time being I will retain proceeds as cash until a suitable replacement can be identified. As an aside, significant outsized gains in two other core holdings – Element Fleet Management and Linamar – were seen this week (both well over 10%) owing to very good quarterly earnings reports. However, neither are close to our analysts’ targets and will therefore be retained.
That’s it for this week. Next update on August 26th. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior 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
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