To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 0.7%; the U.S. Dow Jones Index up 1.2%; and the U.S. S&P 500 up 1.5%.
First and foremost, and as foreshadowed multiple times the previous many weeks, this past Wednesday I completed a second modest shift away from Canadian stock investments and toward the U.S.. For the vast majority of clients (excepting a small handful of more aggressively minded individuals and families), the current ratio of U.S. to Canada stock investments now stands at ~1.33 to 1. Please note that fixed-income (i.e. bonds and equivalents) and international stock allocations are not factored into the 1.33 to 1 ratio.
The above shift acknowledges the better current and anticipated economic conditions in the U.S. vis-à-vis Canada. That said, nearly all of my clients are Canadian residents and, as such, a sizeable exposure to the Canadian market remains both warranted and prudent.
Now, while economic conditions warranted the described shift to the U.S., I’d argue that it’s not exclusively economic conditions that have been behind the recent surge in markets (particularly the U.S.) these past 5 weeks. More important (in my view) has been the very strong earnings results reported by U.S. companies during the current earnings season. In particular, with about 95% of S&P 500 companies now having reported Q1 results, a significantly higher than usual percentage of companies are beating both earnings and revenue estimates. These strong results have led U.S. analysts to increase their forward-looking earnings expectations at the fastest pace in over 2 years. As I wrote in my Q1 letter to discretionary clients, for 2024 to have a chance at equaling excellent 2023 portfolio results, markets will necessarily need to see actual earnings growth, and not expectations of earnings growth (as represented by higher PE ratios). So far, so good!
Last item – artificial intelligence. Both OpenAI (maker of ChatGPT and partially owned by Microsoft – a holding in client portfolios) and Alphabet (parent company of Google and also a client holding) demoed new versions of their respective suite of AI products this week. These products were impressive. While the suite of Google products seems aimed more squarely at developers, the new ChatGPT seems ready for prime-time adoption by the masses. Quite literally, it demonstrated near human level conversational abilities with all the voice inflection, emotion, situational awareness, continuity and immediate responsiveness that you’d expect when talking to another person. Moreover, this near human level ability to interact combines with access to stunningly large databases of data to provide relevant and useful results. Rumor has it that Apple (another client holding) and OpenAI are, in the coming days, set to announce a partnership that will bring this new ChatGPT interactivity model to the newest version of the iPhone, thereby driving a significant upgrade cycle. If you are at all interested, I’d recommend sourcing the video demo of ChatGPT 4o (yes, the numeral “4” and the lower-case letter “o” for “omni” channel inputs of voice, vison and data - all of which ChatGPT can process). To save time, I’d recommend fast forwarding to the point when two male development engineers join Chief Technology Officer Mira Murati on stage for a live interaction with the product (see accompanying picture). As I said, it’s impressive. More to the point, its not hard to envision massively improved corporate productivity as a results of incorporating these ever-improving tools into their operations.
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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