The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
The Walmart vs. Home Depot Paradox
The Walmart vs. Home Depot Paradox
Sadiq S. Adatia, FSA, FCIA, CFA
Chief Investment Officer (CIO), BMO Global Asset Management
Market Recap
Global Risks
In recent months, the market has begun to underestimate the downside potential of certain geopolitical risks. Last year, Russia’s invasion of Ukraine brought war and conflict to the fore, yet since then the market has largely forgotten it. The situation will likely continue to ebb and flow but it remains a present concern that could, at any time, have a major impact on markets. Meanwhile, tensions between the United States and China are starting to pick up due to the upcoming primary elections, concerns over the ‘balloon’ incident, semi-conductors and issues of data privacy surrounding companies like TikTok. The popular Chinese-owned social media platform has drawn a lot of focus from U.S. lawmakers and there’s constant attention on technology issues between the two countries—including, most recently, China’s banning of ChatGPT. While we aren’t seeing markets price-in these risks in the near-term, the possibility of escalation should be taken seriously and factored into investors’ allocation decisions.
Bottom Line: Geopolitical risks around Russia or China can flare up at any time, without warning.
Earnings Decline
Bottom Line: As predicted, a trickle of poor earnings last quarter threatens to become a flood this year.
Walmart vs. Home Depot
Looking at the state of the consumer, we find the environment currently favours diversified retailers, such as Walmart, compared with specialty stores. Consumers will likely spend less as the layoffs announced in previous quarters come into effect and staple goods offer an area of resilience compared to discretionary items. Walmart mentioned this in their earnings, where they highlighted that sales in non-essential goods were struggling, while essential goods did much better. At Home Depot, for example, price points are under pressure as the value of lumber comes off their pandemic highs. What’s happening here is two-fold—the actual sale price for lumber has decreased, and also demand for construction materials is waning due to the housing market slowdown. At some point, the slump could reverse into a benefit because contractors may see renewed interest in home renovations. There’s an old saying that if you aren’t buying a home, you’re renovating one—that upside could come through eventually, but for now, companies like Home Depot are caught in the middle ground. We’re also hearing comments that the U.S. housing market is approaching a bottom and some regions have seen an uptick in loan originations, which raises hopes that we’re nearing the endpoint. But we are not quite there yet. Right now, we expect consumers to make tough choices about where to spend their money knowing it’s going be a difficult rest of the year.
Bottom Line: As inflation recedes, investors should watch for companies that are vulnerable to margin compression and consumer weakness.
Positioning
Our Multi-Asset Solutions Team recently updated the house views based on what we’re seeing in the market. You can access all of our portfolio positioning decisions via the full report: A Winter of Sunny Surprises.
Disclosures:
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
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