To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 2.6%; the U.S. Dow Jones Index up 2.7% ; and the U.S. S&P 500 up 3.7%.
I completed another set of trades for discretionary clients earlier this morning. I sold a long-time holding in Waste Connections as it had a) significantly exceeded our analyst’s target price; b) significantly out-performed markets year-to-date having climbed more than 10%; and c) reached a new all-time high. Maintaining sector exposure, I replaced Waste Connections with another waste management company in GFL Environmental. Our analyst, who provides research on both companies, maintains a target price some 25% above the current market price of GFL Environmental.
As a reminder, exactly one month ago I sold Capital Power in client accounts as it too had achieved the same a, b and c results as Waste Connections identified above. In this case I continue to hold the cash awaiting a suitable opportunity either within the utilities sector or, for diversification purposes, in a new sector.
Moving on, just one economic note this week. RBC’s proprietary recession scorecard now has three indicators in the “red” and four in the “green”. None occupy the “yellow” middle ground. It’s a somewhat unusual set of circumstances to see our scorecard distributed in such a manner. That said, and as I have written in previous updates, I think the “possibility” of recession now leans ever so slightly toward the “probability” of recession. However, given the continued strength seen in employment, the slow normalization in supply chains, and the likely peak in inflation having come two months ago, I continue to believe that any recession is destined to be mild and has likely already been priced in by markets at the recent June lows. As such, I anticipate modest market recovery through year-end… although the year as a whole still seems destined to be one of those negative years that statistically occurs about 25% of the time.
Well, perhaps, I have one other economic note to mention: the U.S. Consumer Price Index (a measure of inflation) is scheduled to be released next week. It is sure to be a market moving event as whatever reading it delivers is sure to affect U.S. Fed policy in its interest rate announcement the following week. I’d be very surprised if there weren’t further improvement in inflation readings.
That’s it for this week. 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
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