The Most Wonderful Time Of The... Markets?

Happy April Folks!

Spring has sprung...and so has your portfolio! I am talking to many very happy people lately and getting lots of positive feedback. Thank-you, it is nice to get compliments and referrals. When markets are good, we tend to forget that a very short time ago many of you were quite stressed out over very "small" normal moves in the portfolios. We did not get the sticker-shock many did in 2022. I must be constrained and keep expectations sane and muted. Corrections happen and markets change quickly. All good things must come to an end... just when will that be, right?

Since I emailed everyone just over five months ago that the markets were bottoming and to add money, we have been on a tear that has rarely happened so quickly and for so long. From my friends at Mackenzie:

Since 1950, there have only been 30 other occurrences when the market rose for at least five consecutive months. Forward returns following these periods were widely positive, with average and median 12-month gains of around 12%:

Yet, news around the world, and in financial markets, continues to be grim about continuing wars, inflation, debt, and almost anything else that can be thought of to instill fear, and here we are at all-time highs in many indexes around the world. Confusing, hey? Why is that you ask? I believe there are two themes playing out: The first is all the talk of the town: Artificial Intelligence, or AI, more on that to come. The second is housing, housing, and more housing. Immigration is high and inventories are low.

With these two themes working in tandem, partnered with lowering inflation (except in housing, isn’t that ironic?), it always has been and always will be...to some extent, about housing demand. We presently have a very resilient "on-the-ground" jobs market keeping consumer confidence strong, along with the "cloud" spending on AI infrastructure that is just in its infancy. With an election coming in the USA this year and Canada next year, along with the budget on April 16, the spending spree is on, baby! All politics aside, I can finally thank Justin for something, lol, as his party has done nothing for our country's growth or your portfolio:  GUNTER: Trudeau government driving economy into the ground. The timing on these two announcements are perfect for the report:

Federal government pledges $6B for housing in new infrastructure fund | CBC News

Trudeau unveils $2.4 billion package for Canada's AI sector

In 2008-2009 the housing crisis decimated financial markets. As total excess became the norm, houses were returned and the job market along with consumer confidence waned. Banks failed. Chaos ensued. Today that is not the case. If you build it, they will come.

Canada's National Housing Agency Forecasts A 20% Jump For Home Prices

CREA National Price Map

(Thanks to Jason, our Branch Manager for these links. Sorry about your Flames not making the playoffs.)

My daughter, Carly, just bought her first house and took possession last Friday. Upon closing, not six weeks after the offer, a similar property sold for 5% more than hers. When housing is strong, consumer confidence and the job markets remain strong. This too shall pass, but not yet with government support and a strong job market in the USA and an OK one here in Canada. From CNBC:

U.S. job growth totaled 275,000 in February but unemployment rate rose to 3.9%

June rate cut expected following weak job numbers

There is a saying about “Dr. Copper” in our business: "So goes copper, so goes the market". I almost wish the saying would change to, “So goes housing, so goes the market.” It makes more sense. We sure aren't building too many office towers right now. And again, this thing called AI. We are seeing tremendous investment in new infrastructure needed to support the upcoming AI wave, such as new datacenters. This from JP Morgan CEO, Jamie Dimon today (another well-timed article, lol):

Jamie Dimon says AI may be as impactful on humanity as printing press, electricity and computers

As you know, we get continuous news of bubbles, debt overload, and run-to-the hills every time we turn on the news. Yet, housing remains a great barometer of business sentiment and hands-on jobs. First we build the infrastructure. Engineers. Heavy equipment operators, trucking dirt out, trenching, sewage and roads and all the global manufacturing of the plumbing, concrete, asphalt, lighting, electricity, internet/fibre optics. This all has to be built from scratch. Now we get down to the actual building of dwellings: More dirt moving. Cribbers. Concrete. Framers. Plumbers. Heating/A/C. Windows. Insulators. Drywallers/Tapers. Painters. Appliances. Finishers. Decks/Landscapers. Think of the immense amount of material and labour behind all of that. Then there is the Realtor. Bank. Insurance. Internet. Security. Furniture.

This is what drives so much of our economic expansion and job stability. Without strong housing demand there is less demand for everything else: fuel, travel, food, cars. Governments drive a very large part of the “other economy”, but this is almost constant in good times or bad. Education, Healthcare, Infrastructure, Social Programs, Taxation, taxation, and more taxation… sorry, I got stuck on that one. When we have economic expansion there is confidence. When there is confidence there is spending. Period.

Even ask your local dentist, trainer, therapist, restaurant, travel agent, hair-salon, dealership, home-décor store, etc. They will all tell you the same thing: When people have confidence in their jobs they spend more. It is the definition of the snowball effect. Strong housing demand fuels a very large portion of all of that. House prices rising also build consumer confidence.

With our governments now needing to spend on both housing and AI we hopefully have a good amount of growth in front of us, barring the inevitable forces of the world we can never predict, and thus why we diversify. There is another saying about don’t fight the Fed, and with them dropping rates sometime soon we get another influx of confidence.

And then there is this AI thing. AI is being called the next wave in human growth. The amount of money to be utilized from companies with very deep pockets like Amazon, Meta, and Microsoft, right down the line to Wal Mart and McDonald’s to use data and get your business is also the unseen "second wave" of spending keeping economic expansion and GDP growth on the positive side. One must compete or be defeated. Think of Sears vs. Amazon. Who won? It is not going away folks, it is only going to grow, and those with the deepest pockets will likely keep winning. Amazon, Meta, Apple, Google, Microsoft, have the money to spend on data gathering and eyes on-screen that others like Starbucks, Walmart, GM, McDonald’s, etc. will pay them for. Data = Dollars. Your phone, car, home, business has become a gathering of data unlike anything prior. You type it and they will come to you. You say it, they will come to you. You need it, they already thought of it, it’s on your doorstep or a click away.

There are pros and cons to all of this. My job is to explain it, not opine on it. As with the internet more good than bad came of it. Hopefully this next evolution/iteration of the internet will be the same. Only time will tell. I plan to watch and learn and profit from it for all of you. Markets have gone up a reason (or two, as explained) it isn't a fluke.

That said, market corrections are normal, and we have gone quite a while without a pronounced one. Folks, it is easier to call market bottoms than tops. I was asked this question at a market bottom, and if I would've gone defensive, as many pundits suggested over the last two years, your gains would be nil. I also would have much lower gains if I sold out every time there was a market pullback warranting fear of the unknown. As stated above, I do like what I am seeing but also know that things can change quickly. A small hedge has been put in the managed portfolios (VXX) and will be added to, or removed, as I see warranted. I do like to remind you all that, on average, there are three 5% pullbacks a year and usually a 10% one every second year. These are healthy. I am hoping for a consolidation or small pullback right now, thus the VXX in the portfolios. It is normal and healthy. As the world evolves and changes, we strive to stay ahead and will make changes as appropriate. We are adding positions in stocks that you might question, at this point, as we did in 2022 with technology when it was out of favor and now is paying us handsomely.

Cheers,

Steve

This information has been prepared by Steve Switzer who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.