To my clients:
All clients should have received an email inviting them to an in-person or virtual annual review meeting at a time and date of their choice. If you have not yet replied, please accept this reminder to do so as soon as you are able. If you haven’t seen your invitation, please re-check your email inbox. If no invitation has been received, please contact Brenda (Brenda.goertzen@rbc.com) for assistance.
It was a mixed week for North American stock markets with the Canadian TSX finishing up 0.7%; the U.S. Dow Jones Index finishing down 2.7%; and the U.S. S&P 500 down 0.7%.
A portfolio trade was enacted for discretionary clients earlier this week with the sale of Home Depot at $330.36/share, and the concurrent purchase of Microsoft at $238.66/share. I’d been looking to include Microsoft in client portfolios for a long time (at least two years), and the opportunity finally presented itself with the recent weakness in price of Microsoft shares being matched by a recent rise in price of Home Depot shares. Normally I’d like to see a portfolio holding meet or exceed our analyst’s target price, and while that didn’t quite happen in this case with Home Depot, it was close. Incidentally, Home Depot was added to client portfolios at the end of March last year at $301.87/share, replacing Stryker which in fact had exceeded our analyst’s $270/share target price at the time. Subsequent price moves have shown this to be a nice series of trades.
Given that I just sent Quarterly Review letters to discretionary clients earlier this week, I’ll limit my economic comments this week and simply note that perhaps the first cracks in the U.S. Federal Reserve’s rate hike narrative might have emerged. Yesterday, Fed Governor Lael Brainard said the following:
“(Our recent “downshift”) in rate hikes will enable us to assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals.”
The underlined portion of comment is key. Translating from “Fed speak”, Ms. Brainard is saying that in addition to the Fed’s responsibility to maintain “price stability” (i.e. control inflation), it also has the “dual-mandate” responsibility to maximize employment. But if the Fed raises rates too far and causes a recession, unemployment is sure to spike. As such, the Fed will be assessing incoming data which has unquestionably been slowing of late. As I said in my quarterly letter, I’d be shocked if the Fed raises rates more than a total 0.50% from here, and in fact would bet the next meeting at the beginning of February will see a final 0.25% increase. (Incidentally, as I’ve also argued previously, I believe the Fed has already raised rates too far).
That’s it for this week. I look forward to seeing clients in annual reviews.
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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