MacNicol’s Monthly Commentary – September 2022
With this commentary, we plan to communicate with you every month about our thoughts on the markets, some snapshots of metrics, a section on behavioural investing and finally an update on MacNicol & Associates Asset Management (MAAM). We hope you enjoy this information, and it allows you to better understand what we see going on in the marketplace.
“I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.”
– Muhammed Ali
Blink and you’ll miss it: the Summer (rally)
With Canadian airports in shambles and COVID a sort of ubiquitous parasitic presence, I decided that it would be a good idea to take the family on an Alaskan cruise with the Walt Disney company (NYSE-DIS) this Summer. I have never been on a cruise before, and I really looked forward to going. Naturally, two concerns immediately came to mind: sea sickness and mind-bending delays at the airport. With the sheer size of the Disney “Wonder”, the ship we would be sailing on, being equivalent to a medium sized Toronto office and given both the Strait of Georgia and the Johnston Strait’s reputation as smoother routes, I didn’t think sea sickness would be an issue. And it wasn’t. As far as travel delays went, I decided to travel with carry-on luggage only. The 11 pound per bag weight limit made packing a challenge, but I was strategic and selective, and in the end the exercise was well worth the freedom of not having to lug around larger pieces of luggage around YYZ and downtown Vancouver. The food was excellent and the entertainment in typical Disney fashion was excellent but the stock market as I found out was anything but…
Ladies and gentlemen this is the captain speaking…
The Summer rally in stocks that began in late June encountered rough seas during the second half of August, which happened to coincide with the time I was away. The S&P 500 fell by 4.24%, the NASDAQ fell by 4.64% and the Dow Jones Industrial Average fell by 4.06% and yes, I will try to inform you all prior to going on vacation again soon. If only I was that important! But the economy is that important and from June 16th to August 17th stocks rebounded on hopes that a cooling economy might elicit less Hawkish guidance from both the Bank of Canada and The Fed. The hope was that inflation would blunt the forceful approach towards inflation that central banks told us they would have to take, raising interest rates and reducing bond buying programs known as quantitative easing. Those hopes were abandoned when US Fed Chair Jerome Powell said that he did not expect to see a quick decline in inflation at a speech in Jackson Hole, Wyoming. And that inflation fighting mission continued more recently with remarks Powell made at the CATO Institute. Unanimously hawkish public remarks by central bankers leave little doubt that rates are going higher. But just like in sailing your ultimate direction and velocity are a function of several competing crosscurrents.
Predicting exactly what central banks will do next is of course an exercise in futility. And we certainly won’t attempt to do that here. However, one possible clue as to what central banks may do comes from the labour market. The US labour market is strong, period. But the unemployment rate did increase from 3.5% to 3.7% in August and if we strip out COVID we haven’t seen a 20-basis point increase in this metric in a little while.
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