April 30, 2023 | portfolio managers' brief

Portfolio Managers’ Brief: April 2023

BY: Jason Ayres
A brief review of market conditions and how they are impacting the management decisions of our Investment Review Committee (IRC).

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KEY TAKEAWAYS

Silicon Valley Bank Collapse:

The collapse of Silicon Valley Bank caused major concerns over the potential global banking system contagion. However, Central Bankers and larger banks have managed to stabilize confidence through their interventions.

Q1 2023 Performance:

Despite uncertainties, major equity indices had a strong Q1 close. The TSX, S&P 500, and Nasdaq showcased gains of 3.70%, 7.00%, and 17% respectively of April 27th.

Corporate Earnings:

Investors are closely watching corporate earnings with about 25% of the S&P 500 companies having reported. The early figures show positive surprises in earnings per share (EPS) and revenue, but this might be due to low set expectations from the previous quarters.

Earnings Outlook:

The average earnings decline is at -6.2%. Moreover, a majority of the companies have downgraded their future outlook, hinting at limited market upside in the near future.

Profit Margins:

The profit margins for the S&P 500 in Q1 2023 are down at 11.2%. This decline in margins hints at the ongoing impact of inflation and potential cost-cutting measures, possibly including layoffs.

Recession Indicators:

According to research from Croft Group, five indicators can predict an impending recession. As of August 2022, only two were signaling. However, these signals might change based on evolving economic data.

Bond Market Reaction:

The bond yields dropped due to the Silicon Valley Bank failure, but quickly stabilized as central bankers communicated their ability to manage risks without drastic monetary policy changes.

Inflation and Employment:

The US and Canada have shown signs of slowing inflation, especially with falling energy costs. However, the Central Bankers aim to see higher unemployment figures, (one of the harbingers of a recession) and this indicator has yet to trigger.

Investment Strategy:

Given the current economic climate, a mild recession is expected towards Q3’s end. However, the approach remains steady – to stay invested and be adaptable, considering the ongoing market uncertainty.

Final Thought: 

As always, markets are forward looking, and they’re fast moving, as such we need to stay patient, stay invested, and be nimble as headlines influence the day-to-day price action.

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