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Market Update July 2023


Market Update

Mike Holyk 2023
Source: iA Private Wealth GIC Rates

Happy August everyone. I am not sure if everyone else feels like somehow we're suddenly living in California. The endless sunshine we have seen over the past two months has been a pretty good change from the dreary start to summer that we had last year. One month left so I hope everyone gets to enjoy it while it lasts.


Markets seemed to enjoy the sunshine in July as well as both the TSX and the SP500 were up for the month. By all accounts it appears that markets believe we have seen the last of rate hikes for this cycle and more and more the idea of a soft landing for the Canadian and US economies seems to becoming a more popular opinion. Many may remember it was July 13th last year that the Bank of Canada began its very aggressive rate hiking cycle. The chart below illustrates the Bank of Canada overnight rate over the past 18 months. It has been these rate increases that have been the headwind for North American Markets.


interest rate changes from the bank of canada

While it has been difficult for stock markets, the rise in interest rates has helped more traditional interest bearing investments like High Interest Savings Accts, GICs And Bonds become a more attractive option. Currently the HISA Rate is approximately 4.7 - 5.0% (depending on the issuer), with 1year GICs paying 5.5%. We have access to a wide variety of issuers for these products so please do not hesitate to contact the office about the best rates we have.


Below I have provided the 1 year chart for the TSX. You can see the see-saw pattern that I have pointed out in previous newsletters. The September and October lows from 2022 (red circle) were replaced by series of peaks and valleys (yellow circle) in 2023. All this volatility has been driven by the macroeconomic noise of Inflation, Interest rates, GDP and Employment.


one year chart for TSX index
Source: QuoteStream as of August 1, 2023

The three largest sectors of the TSX… Financials, Materials and Energy have had a particularly difficult time navigating the rise in rates. I have included the charts of three of Canada’s largest stocks; Royal Bank, Enbridge and Canadian Natural Resources that best highlight this. You can see from the three charts that the last 12 months have been rough on these stocks and indicative of most of the TSX.


Royal Bank

one year chart for RBC stock
Source: QuoteStream as of August 1, 2023


Enbridge

one year chart for Enbridge stock
Source: QuoteStream as of August 1, 2023


Canadian Natural Resources

one year chart of canadian natural resources stock
Source: QuoteStream as of August 1, 2023


While the three charts are all a bit different in shape, all three points to how confused investors have been with the conflicting messages that they have been getting on the Macroeconomic front. The good news I believe is that three stocks, like much of the TSX are fairly valued and present very good opportunity over the next 12-18 months.


My last thought that despite a potential peak in rates, a continued downtrend in inflation and continued resilience in employment and the economy, I think we may have one more rough patch coming into the fall. A couple things make me believe this scenario and while we may not go back to last October’s lows we may be headed for a correction in a historically volatile period of the year. In my opinion it will be driven primarily by the real world news on the economy, mortgage stress, layoffs and bankruptcies caused by the lagging effects of the past years rate increases. These are all signs of a slowing economy and the resumption of a more traditional economic cycle that we have experienced so many times in the past.


While many of these stories will find their way onto the evening news or into newspaper over the coming months and be the source of some additional volatility and anxiousness by individual investors this fall, the market will begin to look forward into the inevitable recovery sooner than many think. Therein will lie the opportunity as markets tend to look forward and in this case it will begin to look to time when central banks will begin easing rates.


So, what does all this mean? I believe the TSX is well positioned given its low relative valuation for a good rebound from the previous 12 months once we get through the final parts of this part of the economic cycle.


Mike


 

Market Data


market performance data for TSX, S&P, oil, natural gas, gold, and canadian/US exchange rate
Source: QuoteStream as of August 1, 2023


ETF's & Funds We Favour


list of ETF"s providing good returns
Source: QuoteStream as of August 1, 2023 - *as of last


Stocks We Favour


favourable stocks for investors
Source: QuoteStream as of August 1, 2023 - (1 year target price source: Yahoo Finance as of Jan 4, 2023)
 

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**Mutual funds are not guaranteed and information on returns is based on past performance which may not reflect future performance. Mutual funds may be associated with commissions, trailer fees, management fees and other expenses. Please read the prospectus. Important information regarding mutual funds may be found in the simplified prospectus. The indicated rates of return are the historical annual compounded total returns, including changes in the unit value and reinvestment of all distributions and do not take into account entry fees, redemption, distribution or various charges or income taxes payable by any security holder that may have reduced returns. To obtain a copy, please contact Mike Holyk

This information has been prepared by Mike Holyk who is a Senior Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisors can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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