Post by
retiredcf on Feb 01, 2023 7:50am
Stephen Takacsy
From yesterday's show. GLTA
Market Outlook
Stock and bond markets rebounded strongly in January after one of the worst years for both equities and fixed income as investors try to anticipate the end to the aggressive central bank interest rate hikes. Rising rates have slowed down parts of the economy such as residential real estate. However, Canada and the U.S. should be able to engineer a “soft landing” as their economies are coming from a strong place with low unemployment, high personal savings and strong currencies. Inflation is already showing signs of easing as supply and demand come more into balance while supply chain disruptions normalize.
The strong rebound in both stocks and bonds is evidence that investors are starting to sniff out a possible end to the tightening cycle. Inflation data is slowly softening and central banks are easing-off in order to give some time for the hikes to take effect with the Bank of Canada already on pause. Investor sentiment has been extremely bearish which was a great contrarian signal. As we said as far back as early November, when sentiment starts to turn, markets usually rise sharply which has been the case since the lows in mid-October (the S&P 500 has risen +15 per cent since). This is why it’s important to keep cool and stay the course.
We have stayed invested but remain well diversified in recession-resistant businesses that have pricing power such as telcos, pipelines and utilities. These safe high dividend-yielding sectors look particularly attractive having corrected significantly towards the end of last year.
We also own companies benefitting from strong tailwinds such as the transition to clean energy (renewable power producers like Boralex and Northland Power). Additionally, we own other long-term investment themes such as aging demographics (Savaria, Park Lawn, Neighbourly), digitization and automation (CGI, Tecsys, Kinaxis, MDF Commerce, ATS), as well as infrastructure (Stella Jones, AG Growth, Logistec). We took advantage of volatility last year to add high-quality companies to our portfolio at more reasonable valuations as share prices came down, such as WSP Global, CCL, Cargojet, Richelieu Hardware, and Jamieson Wellness.