To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing up 2.7%; the U.S. Dow Jones Index up 0.1%; and the U.S. S&P 500 down 0.2%.
I recently mentioned in my update for the week to end September 1, 2023 that with the proceeds from selling client positions in Cisco, I was considering adding more fixed-income to client portfolios or, alternatively, Nike. As it turns out, I’ve decided to do both. Further, I’ve decided to also slightly modify the global positioning in client portfolios by slightly reducing the allocation to the Capital Group Global Equity Fund, and supplementing it with a small stake in the Mackenzie Greenchip Global Environmental All Cap Fund. With several changes in the offing, I’ve also decided that now would be a logical time to rebalance client portfolios back to target weights. I hope to have these changes implemented by Tuesday of next week. I’ll elaborate further on the rationale for these changes in next week’s update.
On economics, while the U.S. economy teeters between a “soft landing” (where no recession occurs) vs. an outright mild recession, the Canadian economy seems to be more fragile. Headwinds from higher interest rates and a slowing global economy are taking greater root in this country. Canadian GDP edged 0.2% lower in Q2 of this year and early reports are pointing to another decline in Q3. Some factors that weighed on output in Q2 will prove ‘transitory’—including disruptions due to wildfires and a strike by federal workers in April. But there are other indications that a long-expected mild economic downturn may have already begun. Indeed, economic growth already looks dramatically softer in the context of a surging population. On a per-person basis, Canadian GDP has now declined for four straight quarters.
The aforementioned softness in Canadian data may well lead to rate cuts sooner than might be expected in the U.S., and further still Canada may be at “peak” interest rates in the here and now. As a prelude to next week’s update, let me simply note that the possibility of peak rates here in Canada is a motivator to adding more fixed-income to client portfolios. I’m a strong believer in the theory that, over the long-term, high quality equities (i.e. stocks) are the best building blocks of wealth, but the stability and attractive rates offered by fixed-income (i.e. bonds) argue strongly for a greater allocation. As mentioned, I’ll discuss more next week.
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
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