To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 0.2%; the U.S. Dow Jones Index down 1.0%; and the U.S. S&P 500 down 0.5%.
Despite the market weakness the past two weeks, it was still a decent month for market returns. As I’ve often said to clients (typically during annual reviews), well diversified portfolios of high quality blue-chip stocks will produce the best long-term results for investors, but these long-term superior results come at the expense of short-term volatility. I’d encourage clients to look through (as best they can) these periodic bouts of market indigestion.
So what brought about the weakness these past two weeks? A variety of factors, but two of note: 1) less than expected earnings from a small handful of companies (companies NOT held by clients… notable examples being Target and Salesforce) in an otherwise very good quarterly earnings period; and 2) after a very strong May through the middle of the month and all major indices reaching all-time record highs, a period of pullback was inevitable. The lesser earnings of the small handful of companies cited in #1 provided, for lack of a better term, the “excuse” for the pullback.
On the economic front, yesterday U.S. First Quarter GDP was adjusted down from the initially reported 1.6% to a revised reading of 1.3%. Meanwhile, the Fed’s preferred measure of inflation, the PCE Index, was released today and came in broadly in line with expectations, which is to say that progress to conquer the remaining vestiges of inflation is going slower than expected or hoped. Neither of these economic developments were particularly supportive of equities, though neither was egregiously bad either. However, next week will see the release of the “Big 3” (my term) economic indicators, and markets are sure to take direction depending upon what those results show.
Last note: the Bank of Canada (BoC) meets next week, and markets are now pricing in an 80% chance of a 025% rate cut. Should the BoC in fact cut rates for the first time since the pandemic began, this will provide a needed tailwind for the higher dividend-yielding stocks which make up much of the Canadian side of client portfolios (said stocks having underperformed for much of the past two years).
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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