May 30, 2023 | portfolio managers' brief

Portfolio Managers’ Brief: May 2023

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



Equity Performance in May:

  • Major equity indices, like the S&P 500 and Dow Jones, have shown varied performance, encountering what traders often deem as ‘technical resistance levels’.
  • TSX lagged due to energy and financial sectors.
  • S&P 500 has been resilient, largely thanks to its tech-heavy composition.
  • Dow Jones is somewhat lagging.

NASDAQ and Tech Stocks:

  • NASDAQ, with its tech focus, has broken its resistance level.
  • Companies related to A.I are particularly receiving increased investor attention.

U.S. Debt Ceiling Overview:

  • The U.S. debt ceiling sets the borrowing limit for the U.S. government.
  • Congress, historically, has adjusted this ceiling multiple times. However, it’s become a controversial topic in recent years, with the potential for severe consequences if not increased.
  • If unaddressed, this could result in U.S. default, affecting both domestic and global markets.

Investor Concerns:

  • A U.S. default could change the perception of U.S. Treasury bonds as a ‘safe investment’.
  • This uncertainty is causing hesitancy and pause in some market sectors due to increased volatility.

Current State of Debt Ceiling:

  • Lawmakers are currently in negotiation over the debt ceiling.
  • Media is magnifying the situation, causing panic and fear among investors.
  • A resolution is needed to prevent potential economic repercussions.

Economic Indicators and Recession:

  • Key indicators like Unemployment and Housing Starts remain robust.
  • However, THE CONFERENCE BOARD’s Leading Economic Index (LEI) signals potential recession. The LEI comprises 10 subcategories and is showing warning signs.

Inflation and Rate Hikes:

  • Inflation remains a central concern, with the U.S. CPI for April at 4.9% and Canadian CPI for April at 4.4% YoY. Rent and mortgage interests are primary drivers.
  • Bonds are under pressure due to the anticipation of further rate hikes.

Outlook on Investments:

  • Uncertainties from upcoming Bank of Canada and U.S. FOMC Meetings, along with the U.S. Debt Ceiling issue, will likely impact market stability.
  • Expectation of a mild recession by the end of Q3.
  • Despite uncertainties, stock markets historically overcome challenges. The plan is to maintain a balanced stance on equities and fixed income, with flexibility to adjust based on market conditions.
  • Option strategies are favored for certain portfolio models in these volatile times.

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