19 May, 2023

Weekly Update - May 19th 2023

Great Week for Technology Stocks and Oil

With technology stocks leading the charge so far this year in terms of performance the Nasdaq 100 index has recouped nearly 50% of its losses since entering a bear market, having gained around 3.6% this week alone. Apple, Microsoft, Alphabet Inc., Tesla, Amazon, Nvidia, and Meta have each gained at least 30% so far this year, with the latter two having doubled in share price in this time. These constituents have contributed most of the gains for the Nasdaq 100 overall; if you were to remove them from the index the 27% year to date return would shrink to just 4.1%, approximately (all in local currency terms).

 

The S&P 500 is set to close out its best week in over a month, and so is crude oil. Futures for West Texas Intermediate are climbing to above $72 per barrel, an approximately 3% rise this week. A supply deficit is expected in the months ahead which will be conducive of further price stabilization. In Alberta, Canada’s top energy producing province, production is currently being disrupted by wildfires to the tune of approximately 240K barrels per day, creating additional tightness in markets.

 

The inflation rate in Canada surprised to the upside Tuesday morning, rising from an annualized rate of 4.3% to 4.4% month-over-month, well above expectations for a decrease to 4.1%. The direct impact of this is that the Bank of Canada’s conditional pause on rate hikes is now up for debate, given the surprise acceleration in price growth for consumer goods. This elevated reading was driven by higher mortgage, rent and transportation costs amidst wage-pressures and a record-breaking labour market. Officials still expect Canadian annual CPI inflation to drift down to roughly 3% this year and reach the desirable 2% target by 2024.

 

Some good news for investors is that bonds are back in terms of their ability to hedge equity market volatility. Bonds have a yield-cushion now that hasn’t been seen in decades and are poised to thrive in a falling rate environment. The traditionally negative correlation between stock and bond prices has been steadily returning as inflation has eased. In the past 30 days, their correlation has turned the most negative it has been in more than a year. This has led to many institutional asset managers increasing fixed income exposures as the benefits of diversification across asset classes becomes more substantial. 

 

As markets react and adjust to changing conditions, a continued focus on your long-term goals remains the best course of action. Investing through a well-diversified portfolio has historically provided the best experience through a combination of goals-based returns and reduced volatility over time.

 

Short-Term View: 

Stocks were mixed after stronger-than-expected earnings in big technology propped up U.S. markets whereas other sectors faltered slightly.

 

Longer-Term Thinking: 

Sticking to your long-term plan through periods of volatility is central to investment success.

 

Logic Over Emotion:

Perspective is key. Focus on long-term goals and timeframes. Contact us to discuss any questions and concerns you may have.

 

Over the past 10 years, markets are positive. Perspective is key. Markets do react to short-term increases in volatility – see the grey lines below – but the long-term trend is upward in the blue and red lines.

 

 

 

Source: Morningstar Direct. Growth of $100,000 shown. Total returns from May 18, 2013 to May 18, 2023 in local currency. Volatility is illustrated by the rolling 5-day minimum and maximum percentage change for each of the indices shown.