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Market and Investment Insights

October 2022 Commentary & Performance Review

After a period of poor performance following the rally in risk assets which started in July and ended mid‐August, global financial markets once again rebounded in October. With US equities leading global stocks higher, analysts are mixed on how sustainable the recent rally is. While the US and Canadian economies have been able to withstand the brunt of interest rate increases thus far, European countries are faring worse off and look to be nearing a prolonged recession. China has committed to continuing their Covid‐Zero Strategy, which will continue to weigh on the earnings of global producers.

Most companies trading on the S&P 500 reported third quarter earnings in October, providing insight into the health of the global economy since many of these companies derive their revenue from overseas. Of these companies, 70% had reported earnings above consensus analyst estimates at the time of writing. While this is below the 5‐year average of 77%, it shows many are still generating positive earnings surprises. Most ‘beats’ were in the Health Care and Energy sectors, while Financials, Communication Services, and Consumer Discretionary led the negative surprises.

As anticipated, the Bank of Canada announced last month that they are raising their benchmark rate by another 0.50%. The move coincides with a 0.50% increase by the US Federal Reserve. The Canadian Dollar regained some ground against the US Dollar as central bank policy between the two countries continues to move in lockstep and global oil prices helped push up the value of Canadian energy exports.

The Canadian labour market surprised many after unexpectedly adding 108,000 jobs in October – ten times the forecasted amount. The gains made last month alone offset all cumulative losses from May to September. Full time employment drove the bulk of the increase, helping bring the overall participation rate up to 64.9% and holding the unemployment rate steady at 5.2%.

There’s no question that we’re at a historical point of significance in the markets. A period of low inflation, low interest rates, and globalization allowed unfettered growth since the Great Financial Crisis in 2008. Now, we’re entering a period of higher interest rates, sticky inflation, lower valuations, and de‐globalization. Coupled with ongoing international conflict, investors will need to remain nimble when building and maintaining their portfolio.

Our primary objective over the past year has been to preserve your capital during this time of heightened turbulence in financial markets. Doing so will allow us to continue compounding your wealth once we enter the new paradigm. During this interim, we have been tactically adding to fixed income (bonds) within our models as they will provide a safer and more reliable income stream than equities. We look forward to capitalizing on other opportunities within markets as they present themselves over the coming months.

 

 

Portfolio Contributors

  • Nucor Co (NUE) surged 22.80% after reporting stronger than expected earnings and management increasing guidance for the 2022 fiscal year.
  • Shares of 3M Co (MMM) rallied 13.84% as robust earnings offset pessimism regarding ongoing litigation.

Portfolio Detractors

  • A strong USD pushed down gold prices, causing Ninepoint Gold Bullion (NPP226) to end the month 3.05% lower.
  • Fixed income continued to struggle, with units of Steadfast Income Pool (MAJ383) finishing relatively flat, down 0.26%.

All returns are for the reported month and in local‐currency.
All data sourced from SIACharts and FACTSET.

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Proxy funds used for benchmark indexes:

  • Canadian Universe Bond Index: iShares Canadian Universe Bond Index EFT (XBB.TO)
  • MSCI World Index (CAD): iShares MSCI World Index EFT (XWD.TO)