Equity markets rallied this week alongside another move down in bond yields.
The S&P 500 rose 2.2%, led by banks, materials and consumer discretionary, but all sectors posted gains.
Meantime, the TSX gained 2.7% as rate sensitives sprung back to life, and technology jumped almost 7%.
Inflation
Last week, the U.S. inflation rate for October came in lower than expected at 3.2%, down from 3.7% in September. This is unambiguously good news. Over the previous few months, inflation had ticked up—nothing massive, but still the wrong direction. A few weeks ago, comments made by the U.S. Federal Reserve (Fed) seemed to indicate their preference for not raising rates any more. This inflation number gives the Fed more data to support staying on the sidelines and inch towards eventual rate cuts. Not surprisingly, markets reacted positively to the inflation news, rallying strongly following the announcement.
Bottom Line: The latest U.S. inflation number is a very bullish sign for markets, because lower inflation means that we’re closer to the end of the rate cycle.
Q4 Outlook
We were expecting some softness in markets in September and October due to seasonality and positioned correctly for that pullback. However, valuations now look more compelling, and as such we have added risk back to the portfolio. Early indications in November, with the markets rallying, seem to be consistent with our positioning. But will this momentum continue through the end of the year? As I mentioned last week: we’re currently seeing cracks in the economy, but nothing is broken. Furthermore, we think the Federal Reserve’s comments were quite the change in tone and set us up well for a strong Q4 rally. December likely won’t be quite as strong as November has been so far, but we do see the upward trend continuing. That’s ultimately why we’re overweight equities for the first time this year. Meanwhile, recent earnings announcements from major retailers like Macy’s and Walmart, as well as rising jobless claims, highlight the fact that the consumer is weakening. We’ve been expecting this, as higher interest rates were always going to have an impact on spending, and that impact has grown as the year has progressed. However, the consumer if far from being in bad shape. On top of that, the holiday season is around the corner, and people typically spend more during that period—even if it means adding to their credit card debt.
Bottom Line: We’re bullish heading into the end of the year, but we’ll be closely monitoring spending during the holiday season, as it could foreshadow what will happen in 2024.
The Magnificent Seven
Can the Magnificent Seven stocks—Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia—continue to push even higher? We think they can. In general, the Magnificent Seven are Quality companies with a significant presence not only in the economy, but in consumers’ pockets. As a result, they are sometimes perceived more like Consumer Staples than Consumer Discretionary. Take, for example, smartphones—if I’m reevaluating my expenses, I might choose to eat a little bit less before I give up my phone, and I suspect a lot of people would feel the same way. The companies also have great balance sheets and are tied to themes, like artificial intelligence (AI), cloud computing, and automation, that are likely to persist for longer than just three-to-six months. Have some of the companies moved up a little too fast? Yes, and it’s also worth noting that we don’t like all seven companies equally. But overall, they’re innovators of the global market, which combined with their strong fundamentals and foothold with consumers makes them still attractive for long-term investors.
Bottom Line: Over a three-to-five-year time horizon, many of the higher-performing innovation companies are the type of companies we would favour.
Positioning
For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Stocking Up for a Holiday Rally.
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.
What does Biden pulling out of the U.S. presidential race mean for markets? With Tech stocks slumping, are concerns about a chip war between China and the U.S. warranted? And will the Bank of Canada cut rates again this week?
Politics and profits: Finding wins in an election year
The bad news is that the economic environment is worse than it was one year ago. The good news is that it is still in a pretty strong position and we’re not seeing any signs in the marketplace worrisome enough to warrant taking significant risk off the table.
Should investors consider rotating into equities with smaller market capitalizations? What did the latest CPI report tell us about the odds of a September rate cut? And where along the yield curve should investors look for opportunities?
BMO ETF Portfolios’ July commentary: “Take the Money and Run, or Take it Easy?”
With the end of the month, quarter and first half of 2024 in the books, markets seem to be taking a collective deep breath in anticipation of what the remainder of the year will bring.
What did we learn from the Fed’s reaction to the latest inflation data? How will election-related volatility manifest, and how big of an impact could it have on markets?
This information is for Investment Advisors only. By accepting, you certify that you are an Investment Advisor. If you are NOT an Investment Advisor, please decline and view the content in the Investor or Institutional areas of the site. The website is for informational purposes only and is not intended to provide a complete description of BMO Global Asset Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. The opinions expressed are subject to change without notice. Products and services of BMO Global Asset Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.
Is It High Noon for The Magnificent Seven?
November 20 to 24, 2023
Is It High Noon for The Magnificent Seven?
November 20 to 24, 2023
Sadiq S. Adatia, CFA, FSA, FCIA
Market Recap
Inflation
Bottom Line: The latest U.S. inflation number is a very bullish sign for markets, because lower inflation means that we’re closer to the end of the rate cycle.
Q4 Outlook
Bottom Line: We’re bullish heading into the end of the year, but we’ll be closely monitoring spending during the holiday season, as it could foreshadow what will happen in 2024.
The Magnificent Seven
Bottom Line: Over a three-to-five-year time horizon, many of the higher-performing innovation companies are the type of companies we would favour.
Positioning
For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Stocking Up for a Holiday Rally.
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.
Insights
Biden pulls out. What next?
Politics and profits: Finding wins in an election year
Is it time to swap Big Tech for Small Caps?
BMO ETF Portfolios’ July commentary: “Take the Money and Run, or Take it Easy?”
What can politics do to your portfolio?
Why American consumers are holding on—and Canadians aren’t