March 21 – March 25, 2022
Do you like rollercoasters? If you do, the markets went on a bit of a ride this past week. The Indexes were up and down throughout the week. Do you ever wonder what causes the markets to move like this? Investor sentiment for sure but let us look at the culprits that moved the market this past week.
There are two main items pushing and pulling the markets: inflation is the big concern, but the Russian invasion of Ukraine has been like fuel to the inflation fire. Inflation in both Canada and the USA has been haunting the markets for the last few months. The monetary policies in both countries left people with a fair amount of money. When the pandemic induced restrictions started to ease, people had pent up demand to do the things that they were unable to do for over a year. As well, with production and manufacturing capacities down due to the pandemic, companies were short staffed and unable to meet the surging demand, both for other companies further down the supply chain, and for the end consumers. Essentially, the perfect storm developed:
- Lots of money
- Surging demand
- Inability to meet the demand due to labour and supply chain issues
As of February, the inflation rate in Canada was 5.7% and, in the US, it was 7.9%. With inflation running well above the target of 2% – 3%, the Bank of Canada (BoC) and the US Federal Reserve (Fed) increased their respective interest rates by .25% to .5%. However, analysts in both countries are hinting more aggressive increases are required. The BoC has said it will act “forcefully” to return inflation to the 2% – 3% range, and the Fed has started talking about a .5% interest rate hike at their next meeting in May.
While the Russian invasion has had a terrible impact on Ukrainians, it has also been felt around the world in the form of rising prices (also known as inflation) for almost everything. The price of oil has surged on supply fears as Russia is one of the top global suppliers of oil. Every time I put gas in my car, I feel inflation at work. Both Canada and the US have pledged to increase output to supply oil and natural gas to Europe to ease the dependence on Russian energy products and help lower sky-high energy costs, but that will take a while to kick in.
Along with being a top supplier of oil, Russia and Ukraine are also leading global suppliers of wheat. However, you can expect those sources of wheat to dry up, especially in the case of Ukraine. More concerning, Russia and its ally Belarus provide over 40% of global exports of potash, a key ingredient of fertilizer. The loss of fertilizer products will lead to higher prices in almost all food products as producers pass along the higher costs to consumers. As well, if the cost of fertilizer gets too high, producers will not be able to afford enough fertilizer required for their crops. This in turn will lead to lower supplies to meet the demand. In the case of food products, we will get a double dip of inflation with higher fertilizer to produce the crops and higher fuel costs to get the produce to market.
The next time you go grocery shopping, note the prices of the products you buy. It may take a month or so for the higher costs to kick in so keep your receipts and compare them to your latest receipt each time you go grocery shopping. That is inflation in action and a knock-on effect of the Russian invasion of Ukraine.
Inflation is not good for businesses as it increases costs which are passed down the line to the eventual consumer. Talk of inflation makes investors skittish due to fear of higher interest rates. Its these rumours that cause the stock market to act like a rollercoaster.
Let us see if the Indexes and portfolios enjoyed the rollercoaster ride this past week….
Weekly Market Review
The impressive performance by the S&P 500 Index (S&P) last week cut its loss for the year to date in half. On March 14, the S&P was down 11.8%, today the S&P starts at -5.6%. I hope that trend continues.
Monday: News the European Union is considering a Russian oil embargo sent the Toronto Stock Exchange Composite Index (TSX) up for the fifth straight session thanks to gains in Energy (oil) and Materials (mining and fertilizers) stocks.
In the US, the Energy and Materials sectors were up, however, after the US Federal Reserve suggested a .5%, or 50 basis point, raise in interest rates might happen sooner rather than later caused the S&P, the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) break their 4 day winning streaks.
Tuesday: The four major North American markets each finished in the green (or is it black) today. In both countries, the respective Technology and Consumer Cyclical sectors led the advance. The Financial sectors in both countries also had a good day as bank revenues are likely to increase now that interest rates have gone up and further hikes are anticipated. The TSX closed at another record high, while all the sectors S&P ended higher, except for the Energy sector which dropped when the European Union pulled back from talks about a Russian oil embargo.
The Nasdaq rose 2% on the strength of a few of its biggest growth companies such as Apple (NASD:AAPL), Alphabet (NASD:GOOGL), Microsoft (NASD:MSFT) and Tesla (NASD:TSLA). In Canada, Shopify (TSX:SHOP) had a good day dragging the Canadian Technology sector higher.
Wednesday: The TSX had its first decline in almost two weeks despite gains in the Energy and Materials sectors which had had been the main catalysts for the TSX’s string of positive days. Despite the a down day for the TSX, it was still better than the three American Indexes today which each fell more than 1%. In Canada and the US, the respective Technology and Financials sectors were the worst performers on the day.
The heads of Western countries will meet in Brussels later Thursday to discuss additional sanctions against Russia for its invasion of Ukraine. Other than an oil embargo I do not know what other economic measures are available. As well, Russia announced it planned to sell natural gas in roubles to ‘unfriendly’ countries. Disruptions in shipments of Kazakhstan and Russian oil further tightened an already tight supply of oil, causing a spike in oil prices. The disruption was a result of a major storm at a terminal on the coast of the Black Sea.
Thursday: The stock market continued its up and down like a yoyo routine. The Indexes fell on Wednesday and rebounded today to each close the day in positive territory. In Canada, the Healthcare sector rose on news the US government is preparing to vote to legalize marijuana at the federal level. The Canadian Energy sector was a drag on the TSX as the price of oil fell 2.25%.
In the US, today’s rally was led by the Technology sector, especially the semiconductor industry. The Basic Materials (mining and fertilizers) and Healthcare sectors round out the top three US sectors for the day.
Friday: The TSX started a new winning streak ending higher for the second consecutive day. Once again rising oil prices propelled energy stocks higher, overcoming the drag of the technology sector. The TSX recorded it fifth straight week of gains.
In the US, both the S&P and DJIA finished higher while Nasdaq was unable to crawl out of the hole it dug itself earlier in the day. The Energy sector, riding the coattails of higher oil prices, led the way upward. The Financial sector, benefiting from higher interest rates, and, surprisingly, the Utilities sector helped boost the S&P and DJIA. Utilities are typically considered defensive stocks because of their low growth rates and dependable dividends. Not sure what would cause investors to move into Utilities other than the ongoing war in Ukraine. Finally, if the Nasdaq ends the day down you know it was not a great day for the Technology sector. Technology stocks were down on concerns of more aggressive interest rate hikes by the US Federal Reserve.
Weekly Portfolio Review
All four Indexes ended the week in the black, led for the second week in a row by the Nasdaq. As seen in the chart above, the three American Indexes seemed to follow a similar yo-yo pattern while the TSX was more like a rolling wave with smoother ups and downs.
I was hoping the Portfolios would have another great week like last week, but it was not to be. Going into Friday all three Portfolios were in the black but a decline in the Technology sector on Friday caused all three Portfolios to fall into the red. ☹ This week was one of the few times when all four Indexes, led by the Nasdaq, advanced for the week while all three Portfolios declined. Usually, the Portfolios ride the coattails of the Nasdaq. Even though each portfolio was down it was not by much and its much less stressful looking at the Portfolios now than it was several weeks ago, when they were constantly falling. That being said, I would rather they just be in the black than just a little in the red. Hopefully that will be the case next week.
Companies on the Radar
With limited cash, I’ve removed Amazon (NASD:AMZN) from my radar. I would lose approximately CAD$ 800 to foreign exchange and I can think of better ways to spend that money, such as another investment in the Energy sector, either another investment in International Petroleum (TSX:IPCO) or Transocean (NYSE:RIG). I am also thinking about adding to shares in Marqeta (NASD:MQ) or Unity Software (NYSE:U). Still on the radar are:
If only there was more cash. 😊
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended March 28, 2022: DOWN
Despite ongoing supply chain issues plaguing the automotive industry, GM (NYSE:GM) announced plans to accelerate the rollout of its Cadillac electric vehicle.
Nvidia announced several new chips and technologies that will boost the speed of chips used in artificial intelligence (AI), and data centres (used by customers such as Alphabet and Microsoft). They estimated the total addressable market for gaming, AI, the metaverse, and automotive applications will grow to $1 trillion over the next decade. Hence Nvidia is on my radar.
Nvidia is also talking with Intel (NASD:INTC) about Intel producing Nvidia’s chips. Sounds like a win for both parties. Nvidia gets another supplier of its in-demand semiconductors and Intel gets business for its new factories.
Apple is acquiring British financial technology company Credit Kudos for USD $150 million. As part of a trend known as ‘open banking,’ Credit Kudos develops software to provide better and faster credit checks on consumer loan applications using the consumer’s own banking information. From here, I am not sure how this acquisition fits with other Apple financial services Apple Pay and Apple Card. Perhaps Apple is looking to setup its own financial eco system to help consumers finance the rumoured Apple car. 😊
Rogers Communications (TSX:RCI.B) proposed acquisition of Shaw Communications (TSX:SJR.B) passed its first hurdle with the conditional approval of Canada’s telecommunications regulator.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Pulse Seismic Inc (TSX:PSD)
US $
NVIDIA Corp (NASD:NVDA)
Quarterly Reports
Copperleaf Technologies Inc
All currency listed in CAD dollars
Selected highlights from their fourth quarter 2021 financial results on March 23, 2022
Fourth quarter highlights:
- Revenue increased 33% YoY to $21.8 million, driven by the increase in new clients and the expansion of existing clients.
- Gross profit of $17.3 million, a 29% increase from $13.4 million in Q4 2020, representing a Gross Margin of 79%.
- Strong balance sheet with cash and cash equivalents of $161.4 million as of December 31, 2021, compared to $15.9 million on December 31, 2020.
Full Year 2021 highlights
- Record revenue of $69.3 million, an increase of 56% over the prior year.
- Annual Recurring Revenue grows 39% YoY to $36.8 million and Net Revenue Retention Rate was 116%.
- Gross profit of $54.9 million, a 69% increase from $32.4 million in the prior year, representing a Gross Margin of 79% as compared to a Gross Margin of 73% as of December 31, 2020. The growth reflects an increase in revenue, successful remote delivery resulting in less travel, as well as an improvement in utilization.
- Net loss of $6.5 million, compared to net loss of $9.1 million in the prior year
Portfolio 2
Portfolio 2 for the week ended March 28, 2022: DOWN
The governing Liberal Party of Canada reached an agreement with the New Democratic Party that should keep the Liberals in power until 2025. Political thoughts aside, the government is now likely to impose some form of tax on bank profits greater than CAD $1 billion. Since banks never lose money (IMHO), this means that tax will be passed on to us consumers in some form of a fee hike. It also sets a bad precedent for future taxes on profits in any industry. ☹☹
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Dream Industrial Real Estate Investment Trust (TSX:DIR.UN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.
Portfolio 3
Portfolio 3 for the week ended March 28, 2022: DOWN
Hackers claimed to access Cloudflare (NYSE:NET) systems and reset a few employee passwords. Cloudflare announced there was no evidence its systems were compromised, but nevertheless was resetting employee login credentials as a precaution. Later this week police in London, England arrested the suspected hackers. It is believed these same people had previously hacked Nvidia, Microsoft and Okta.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
No dividends this past week.
Quarterly Reports
Fortuna Silver Mines Inc.
All currency listed in USD dollars
Selected highlights from their fourth quarter 2021 financial results on March 23, 2022
Fourth Quarter Highlights
- Record sales of $198.9 million, an increase of 92% from the $103.5 million reported in Q4 2020, due primarily to the contribution of gold sales.
- Net income of $16.6 million or $0.05 per share, compared to $18.6 million or $0.1 net income per share reported in Q4 2020.
- Net cash provided by operating activities of $57.1 million, compared to $31.3 million reported in Q4 2020.
- Free cash flow from ongoing operations1 of $30.9 million compared to $34.5 million reported in Q4 202.
Full Year 2021 highlights
- Sales of $599.9 million, compared to $279.0 million in 2020.
- Net income of $59.4 million, compared to $21.6 million in 2020.
- Net cash provided by operating activities of $147.1 million, compared to $93.4 million reported in Q4 2020.
- Free cash flow from ongoing operations of $97.0 million, compared to $78.9 million in 2020.