Aspira’s Timely Market Dispatch - Our Take

  • Inflation Is Peaking
  • Fear Is Extreme On Both Wall St & Main St
  • Select Companies Are Really Attractive

June 13th, 2022

The above bullet points sum up our take on the current market rout. As an FYI, at the close of business today, on a year to date basis, the three most watched broad market indices for Canadian investors pegged in as follows:

  • S&P TSX Composite Index -7%                     
  • S&P 500 Index -21%
  • NASDAQ Composite Index -31%

That’s the bad news. The good news is that clients of Aspira are doing considerably better because we are underweight the mega cap technology names (major source of pain) and we are overweight energy names (major source of gain). History often rhymes and have we not seen this phenomena before?

Performance of Energy Sector (XLE) relative to Technology Sector (XLK)


The skinny on our headline bullet points are as follows:

  • Inflation Is Peaking – Canada’s inflation number pegged in at a 31 year high or 6.8% for the month of April whereas the US was at 8.6% for the month of May. The first thing we should recognize when we read those eye-popping numbers is that they are lagging indicators. We are reading what has happened in the past, not what is necessarily going to happen in the future. When we look to leading indicators of inflation, here is what we see:
    1. The money supply is falling rapidly as global central banks withdraw the punch bowl – stimulus spending – the major source of cheap money and thus inflation.
    2. Higher interest rates are already starting to bite – used car prices and real estate are already rolling over and other big ticket items are sure to follow.
    3. The economy is slowing – Citigroup’s Economic Surprise Index has turned sharply lower as “the cure for high prices is high prices” effect takes hold.

That is not to say prices are going down, rather we are getting indications that they are stabilizing.  

  • Fear Is Extreme On Both Wall St & Main St - fear tends to be a lagging to coincident indicator. What we are especially encouraged with is the near unanimous sentiment of just how bad things are going to get. To wit:
  • The current level of the University of Michigan’s Consumer Sentiment survey is at a decade’s long low.
  • The retail investor (Main St.) has seldom been this fearful as measured by the AAII Bull Bear Index.

  • Moving to Wall Street, CNBC’s CFO council survey was out on Thursday, June 9/22 with 77 percent of respondents saying the country (US) will experience a recession in the first half of 2023 due to the ongoing issue of inflation.

One of the keys to understanding the market is that when both Main Street and Wall Street overwhelmingly agree that X is going to happen, it seldom does and even if it does happen, the market has already priced it in. By the time it becomes obvious we are emerging from the slowdown/recession, bargains will be few and far between – not so today.

  • Select Companies Are Really Attractive – and the key word in that statement is select – while investor mentality over the last five years with respect to mega cap technology stocks has been buy the dip, it has now shifted to sell the rally. The converse is true for resource companies. This should not surprise us. Long term cycles are inevitable and they do repeat themselves, with nuances. Students of market history and those of us who are long in the tooth have an edge here, an edge we will continue to exploit.

For Our Clients – below is our performance by strategy on a year to date basis, as of June 13, 2022:

  • The Dividend Value Discipline™ (DVD) Equities -8.1%
  • The Dividend Value Discipline™ (DVD) Balanced -8.2%
  • Fixed Income Cheap and Cheerful (FICC) -9.9%
  • The Keep More Income (KMI) +15.3%
  • The Next Cycle Resource Fund (NCRF) +45.1%
  • The Global Active Macro ETF Strategy (GAME) -12.9%
  • The Tax Advantaged Preferred Share Strategy (TAPS) -7.1%

While we don’t expect you to be jumping over the moon with current year to date results, let’s be reminded that we had some extraordinary results for 2021 and that two steps ahead, one step back is the price we pay for equity type returns. Furthermore, as long as you have sufficient reserves for your foreseeable spending needs, the current bad news isn’t bad news at all. While these selloffs are not as much fun as when the market is going up, it is a lot easier to buy great companies at discounted prices and thus the buying you have seen in your accounts of late.

Conclusion – please send money if you can and to those who already have, good on you! We are carefully getting the funds invested at what we believe to be very attractive levels. Please be reminded that when I buy for you I buy for me, same time same price.

Postscript - please share this missive as you see fit and do reach out to us if you would like more colour. 

 

Chris Raper, CIM, CFP® | Co-Founder, Senior Wealth Advisor, Cross Border Specialist

250.405.2434 | chris.raper@raymondjames.ca | www.aspirawealth.com

Aspira Wealth of Raymond James Ltd.

 

This newsletter has been prepared by Chris Raper and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This newsletter is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities related products and services are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a member-Canadian Investor Protection Fund. Raymond James (USA) Ltd. (RJLU) advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Raymond James (USA) Ltd., member FINRA/SIPC