Items that may only interest or educate me ….
April investing, Canadian interest rate remains unchanged, US economic data that impacts investors…
April has generally been a decent month for the four major North American indexes. According to historical data, the S&P 500 (S&P) produced positive returns about 60% of the time, slightly above the average for all months; the Dow Jones Industrial Average (DJIA) produced positive returns for approximately 58% of the time, again slightly above the average for all months; the Nasdaq Composite Index (Nasdaq) has had positive returns about 57% of the time; and finally, the Toronto Stock Exchange Composite Index (TSX), from its inception in 1977, has generated positive returns in April for roughly 53% of the time.
That’s a long way of saying April is a good time to be invested. 😊
BoC Benchmark at 4.50%
The Bank of Canada’s (BoC) left the benchmark interest rate at 4.50% but it could remain “higher for longer” than originally forecast to ensure both the cost for services cools off and wage growth slows. The members discussed a rate increase but recent data supported the BoC’s belief that inflation will continue to fall to the 3% range sometime this summer, before reaching their 2% target near the end of 2024.
The Canadian economy remains strong as economic growth was higher than expected and the labour market remains strong. The BoC’s latest forecast is Canada will likely avoid a recession, with “positive but weak growth and declining inflation.” They raised their economic growth expectations from their original 1.0% in January to 1.4%. Despite the likelihood of a recession diminishing, the BoC also cooled investor expectations that a there would be an interest rate cut this year, saying “the BoC remains prepared to raise the policy rate further if needed to return inflation to the (two per cent) target.”
A quick reminder, higher interest rates, also known as tighter monetary policy, make loans more expensive and harder to get for individuals and businesses alike. In theory, this lowers demand for goods and services obtained on credit, which in turn lowers inflation.
US economic data
Consumer Price Index (CPI)
The US Labor Department announced the March CPI climbed 0.1%, after gaining 0.4% in February. On an annual basis, the CPI rose 5.0% in March, the smallest annual gain since May 2021, after rising 6.0% in February. Both the monthly and yearly gains were lower than analysts 0.3% and 5.2% forecasts. Core CPI (less food and energy prices) increased 0.4% in March, after increasing 0.5% in February. On an annual basis, core CPI rose 5.6%, following a 5.5% rise in the February. The price of gas declined by 4.6% but was offset by higher housing prices to keep inflation high.
While inflation continues to fall, it does not mean interest rate increases are finished. Core CPI continues well above the Federal Reserve’s (Fed) inflation rate target of 2%. Its likely the Fed will have at least one more interest rate hike before it can declare victory over inflation, but they will maintain that level until inflation approaches their target.
Producer Price Index (PPI)
The March PPI fell by 0.5% in March, after falling 0.1% in February. That was the biggest monthly decline since April 2020. On an annual basis, the PPI grew 2.7% in March, after rising 4.6% in February. Analysts had expected gains of 0.1% and 3.0%, respectively. Core PPI (less food, energy and trade services) rose 0.1% in March, slightly below February’s 0.2% increase. On an annual basis, the core PPI grew 3.6% in March, after a 4.5% increase in February.
Retail Sales
The Commerce Department reported March retail sales fell 1.0% since February, however, they were up 2.9% on an annual basis. For the first quarter, retail sales grew 5.4% compared to the same period a year ago.
Fed Minutes
The Fed’s Federal Open Market Committee (FOMC) March Meeting minutes revealed they considered a pause because of the banking crisis but ultimately went ahead with a 0.25% increase to the US benchmark interest rate. The FOMC acknowledged the impact the banking crisis could have on the economy, but they felt the crisis was contained. The minutes from their meeting also showed:
- Fed staff felt the banking crisis could lead to a ‘mild recession.’
- A number of Fed members were prepared to consider a 0.5% increase if the banking crisis had not occurred.
- FOMC members remarked inflation remained too high and the job market was too strong. An additional increase might be necessary to bring inflation down at a faster pace.
What does all this data mean? My guess is the mixed economic data all but confirms the Fed will add another 0.25% to the US benchmark interest rate, barring any unforeseen event (like a bank collapse 😊) between now and their meeting in early May.
With that brief economic update out of the way, let’s see what happened this past week….
Weekly Market Review
Monday: It was the first day of trading after the Easter holiday, but more importantly, it was the first day of trading after the release of last Friday’s jobs report. The data strengthened the case for additional interest rate increases so it was interesting to see how investors responded. All four major North American indexes – the TSX, the S&P, the DJIA, and the Nasdaq – started the day lower before rallying. The Nasdaq was the only index that failed to make it into positive territory by the end of the day. Investors confidence is growing as the banking crisis drops farther into the rear view mirror.
In Canada, the TSX ended higher as investors wait for the BoC’s latest update on Wednesday. Investors expect the benchmark interest rate to remain at 4.5%. In the Canadian sectors, Healthcare and Consumer Cyclicals had the biggest advance, while Basic Materials (miners and fertilizer manufacturers) was the only sector to decline.
In the US, concerns of another interest rate hike caused the American indexes to break even, with the blue chip DJIA up, the S&P flat and the Nasdaq down. Investors digested the latest US jobs data which showed the economy cooling but not enough to avoid another rate increase by the Fed. The latest Consumer Price Index (CPI) data comes out Wednesday and should provide additional clues what to expect from the Fed. In trading, the Basic Materials and Industrials sectors gained the most while the Technology and Consumer Staples dropped the most.
Tuesday: A mixed but essentially flat day in the markets as investors await the latest economic news from Canada and the US.
In Canada, it was a good day for the TSX as it closed at a five-week high thanks to higher commodity prices, especially gold, which provided a boost to the resource heavy index. Tomorrow the BoC will announce any changes to the Canadian benchmark interest rate. Most analysts expect the rate to remain unchanged at 4.5%. In trading on Bay Street, the Basic Materials and Energy sectors had the best day while Technology was the only Canadian sector to end lower.
In the US, it was another mixed day for the American indexes as the DJIA gained, the Nasdaq fell and the S&P split the difference and ended flat. Investors are waiting for tomorrow’s key US CPI data to see if inflation continues to fall in the US. On Wall Street, Basic Materials and Energy were the best of the American sectors, and Technology was the only sector not to gain ground.
Wednesday: Another mixed day for the North American indexes with the TSX the only index to end higher. There was a lot of information to digest today, starting with the BoC maintaining its pause on the Canadian interest rate, leaving it at 4.5%. Throughout the day investors reviewed the minutes of the Fed’s Federal Open Market Committee’s (FOMC) last meeting when they raised the US benchmark interest rate. As well, US CPI data showed inflation rose at an annual rate of 5%, while Core CPI increased by 5.6%, in line with expectations.
In Canada, the TSX received a boost from higher commodity prices and the BoC maintain the pause on the benchmark interest rate. In the Canadian sectors, Industrials and Basic Materials led the gainers. Only the Healthcare, Consumer Staples and Consumer Cyclicals sectors declined.
In the US, despite the CPI suggesting inflation was falling, albeit slowly, the three American indexes all dropped into the red when the FOMC minutes showed the FOMC members had concerns about a possible recession. In the American sectors, Energy, Industrials and Healthcare were the only sectors to advance. Dropping the most were the interest sensitive Consumer Cyclicals and Technology sectors.
Thursday: A good day for all four indexes as more US data indicated US inflation continues to cool. The combination of yesterday’s conflicting CPI data – CPI was down but core CPI remained high – and additional data today showing US inflation trending downward led investors to believe the Fed could pause hikes and possibly lower interest rates by the end of 2023.
In Canada, the TSX continues to advance as investor sentiment continues to improve after positive economic news in both Canada (interest rate remains unchanged) and the US (cooling inflation). Surging gold prices are also giving the TSX a boost. Basic Materials and Telecommunications Services were the biggest gainers of the Canadian sectors, while Consumer Staples and Utilities were the only sectors to end in the red.
In the US, the PPI came in below expectations and weekly jobless claims were up. Both good news to the Fed in their battle with inflation. Analysts and investors are hoping the CPI and PPI data will cause the Fed to pause rate hikes sooner rather than later. In trading, all US sectors ended higher, led by the interest sensitive Technology and Consumer Cyclicals sectors. The defensive sectors Utilities and Consumer Staples brought up the rear.
Friday: Another mixed day to close out the week. An afternoon rally nudged the TSX into positive territory. Meanwhile, all three American index ended the day lower when a member of the Fed stated inflation remains “much too high,” suggesting a 0.25% increase was all but certain at the Fed’s next meeting. A warning from the International Energy Association about a significant supply deficit later this year sent oil prices higher.
In Canada, the TSX hit its highest point in six weeks thanks to higher oil prices and a rebound in Canadian bank stocks. In trading, the Canadian sectors were split 50/50 with the Technology and Consumer Staples sectors leading the gainers, while Utilities and Basic Materials sectors fell the most of the decliners.
In the US, strong first quarter earnings by a handful of big American banks that beat expectations wasn’t enough to overcome investors’ expectations of another rate increase by the Fed. In trading, the Financials and Energy sectors were the only two American sectors to end higher. Dropping the most were Utilities and Basic Materials.
Weekly Market and Portfolio Review
For the week, the TSX (SPTSX) posted a fourth straight gain, up 1.9%, the S&P 500 (SPX) gained 0.8%, the DJIA (INDU) advanced 1.2% and the Nasdaq (CCMP) increased 0.3%.
Despite a mid week swoon (as shown on the chart above), the American indexes did enough on Thursday to join the TSX in the weekly winners’ column. The main driver of the markets was US economic data and the BoC maintaining the pause on the Canadian interest rate. The TSX was the beneficiary of interest rate pause as well as rising commodity prices, especially oil and gold prices. All three American indexes were buffeted by the economic news, with the blue chip DJIA able to ride the turbulence the best. The interest sensitive Nasdaq and S&P had deeper drops but rallied to end the week in positive territory.
As seen on the chart below, it was another week with all three portfolios ending higher. Portfolios 2 and 3 each had a strong week. In both portfolios, no one company had an outstanding week, rather almost all companies had a solid week with very few companies not ending higher. Bringing up the rear was Portfolio 1. I was surprised it did not do as well as the other two Portfolio but at least it did not lose money.
Companies on the Radar
Once again, no new companies to add to my radar list. The radar list currently consists of:
- Vale (NYSE: VALE): A global mining company that extracts various metals and rare earth elements such as nickel, cobalt, gold, copper, that are used in electric vehicles.
- Intact Financial (TSX: IFC): A Canadian mid size insurance company supplying home, car and business insurance in Canada, the US, and the UK.
- Hammond Power Solutions (TSX: HPS.A): A small cap Canadian company manufacturing transformers used throughout the world in a wide variety of industries.
- Supremex (TSX: SXP): A small cap company selling packing solutions throughout Canada and the USA.
- Amphenol: Producer of a high-tech interconnect, sensor, and antenna solutions for the automotive, aerospace, industrial and various technology industries.
- Smartcentres Real Estate Investment Trust (TSX: SRU.UN): Owns and manages a number of income producing malls and retails spaces throughout Canada.
- Ero Copper Corp. (TSX: ERO): A small cap Canadian copper mining company with mines in Brazil.
The Radar Check was last updated April 14, 2023.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended April 14, 2023: UP 
- Tesla (NASD: TSLA) announced they intend to build a Megapack battery factory in China as a complement to their existing electric vehicle (EV) Gigafactory. It will be interesting to see how Tesla navigates the issue of receiving US government tax breaks while at the same investing heavily in China. The tax breaks are to encourage companies to invest in the US, not foreign countries, especially the US’s top economic competitor.
- General Motors (NYSE: GM) will get more into the mining business to secure its supply chain. GM plans to invest in private company EnergyX to secure lithium supplies for its EV batteries. In exchange for a US$50 million investment, GM will have the right of first refusal for lithium from any EnergyX projects. Earlier this year GM became the largest shareholder of Lithium Americas Corp (TSX: LAC), another lithium miner.
- Amazon (NASD: AMZN) joined the Artificial Intelligence (AI) battle, releasing a number of proprietary AI tools to allow Amazon Web Services (AWS) customers to build their own AI chatbots and image-generation services.
- Apple (NASD: AAPL) continues to increase the amount of recycled materials it uses in its products. Apple plans to use only recycled cobalt in its batteries by 2025. Currently 66% of its aluminum, 95% of tungsten and 75% of other rare earth metals it uses in its products are recycled.
Activity
Rogers Communications’ (TSX: RCI.B) acquisition of Shaw Communications closed. Shares exchanged for C$40.50 per share.
Private software investment firm Thoma Bravo’s acquisition of Magnet Forensics closed. Shares exchanged for C$44.25 per share.
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)
Algonquin Power & Utilities Corp (TSX: AQN)
US $
Innovative Industrial Properties Inc (NYSE: IIPR)
Quarterly Reports
No quarterly reports this past week.
Portfolio 2
Portfolio 2 for the week ended April 14, 2023: UP
- The Bank of Nova Scotia (TSX: BNS) continues to make changes to the executive management team. CEO Scott Thomson recently replaced Brian Porter (retirement) and now Francisco Aristeguieta will be replacing the retiring Ignacio Deschamps as Group Head, International Banking. Its hard to tell if the share price is higher because investors approve of these changes or it is a result of the banking crisis fading into the background. I am guessing more of the latter. 😊
- Brookfield Infrastructure Corp (TSX: BIP.UN/BIPC) will purchase Triton International Ltd (NYSE: TRTN), a freight container lessor, for about US$4.7 billion. BIP.UN hopes to capitalize on growing demand for shipping containers by customers wanting to eliminate shipping delays.
- Telus’s (TSX: T) western Canada broadband network won a number of awards in BC and Alberta. Telus won Consistent Quality, Video Experience and Upload Speed in the two provinces; best Broadband Success Rate in BC, second best in Alberta; and tied for first in Peak Download Speed in both provinces. If nothing else, Telus can claim they are Western Canada’s best internet provider.
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 $
Telus Corp (TSX: T) DRIP
Brookfield Infrastructure Partners LP (TSX: BIP.UN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.
Portfolio 3
Portfolio 3 for the week ended April 14, 2023: UP
- A recent report anticipates the global cyber security market will reach US$266.2 billion by 2027, with a Compound Annual Growth Rate of 8.9% through to 2027. This presents a great opportunity for Cloudflare, Inc. (NYSE: NET) and CrowdStrike (NASD: CRWD), two of the leading cybersecurity companies, and more importantly, both are in .
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 $
TD U.S. Equity Index ETF (TSX: TPU)
Alvopetro Energy Ltd (TSX: ALV)
Brookfield Corp (TSX: BN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.