To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 0.6%; the U.S. Dow Jones Index down 1.1%; and the U.S. S&P 500 down 0.3%.
Despite the down week for the broad markets, the equity portion of discretionary client portfolios actually enjoyed a modest up week. This relative outperformance attributes to a handful of client stocks that had very nice up weeks (Element Fleet Management, Linamar, GFL Environmental, Amazon and Alphabet/Google in particular) as well as my well known strategic preference not to hold oil stocks (which had a down week).
Economically, despite the continued tick down in inflation data (both the Consumer and Producer Price Indexes revealed further pull-backs in year-over-year inflation), for me the big economic report of the week was yesterday’s weekly jobless claims. At 264,000 layoffs for the week, this particular data set came in well ahead of last week’s reported number (+22k or 9.1% higher than last week) and substantially higher than market expectations and, further still, is the highest reading in over a year. Longtime clients will know that I have written many times that a “spike” up in weekly jobless claims may be RBC’s favourite leading indicator of recession. This week’s reading, on its own, does not quite qualify as a “spike”, but it’s close and it certainly has my attention. That said, even if the data set does truly “spike up” in sustained fashion over the coming weeks, it doesn’t really change my perspective on the economy or the road ahead. For many months now I have felt the U.S. Federal Reserve has pushed interest rates too high too quickly and the lagged effects of such increases would eventually work their way through the economy causing a mild recession. But I also believe the October 2022 market lows already priced-in any looming recession. In my view markets now are looking ahead to inevitable rate cuts that will be necessary to fight a recession and, more importantly, the recovery on the other side.
Bottom line: the months ahead are likely to be bumpy and may well test client (and Portfolio Manager!) mettle; but I believe net-net more market gains can be eked out through year-end. Stay the course.
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
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
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