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.
Is Disney the Canary in the Coal Mine?
February 13 to 17, 2023
Is Disney the Canary in the Coal Mine?
February 13 to 17, 2023
Sadiq S. Adatia, CFA, FSA, FCIA
Market Recap
Consumer Confidence
Bottom Line: Unemployment numbers are a lagging indicator, while consumer sentiment is more responsive to the on-the-ground reality.
Disney
Speaking of unemployment—last week, Disney announced that it will cut 7,000 jobs as part of an effort to slash costs. Is this an ominous sign for the rest of the economy? In our view, Disney is a prime example of where shareholder priorities lie in the post-COVID, higher interest rate economy. As we emerged from the pandemic, Disney’s theme park business picked up. There’s also their streaming business, Disney+, which did well at the outset but perhaps tapered off. When you add in ESPN, they have a nice, diversified portfolio, which investors tend to like. But ultimately, what did Disney get rewarded for? Cost-cutting and restructuring. Meta also got a boost when they announced less spending towards the Meta universe and a big buyback program. That’s an indicator that no matter how good earnings are, the market wants to see expense control and efficiency. Chipotle is a similar example. They announced that they’re looking to add workers to keep up with demand, but also noted that it was wage costs, and costs generally, that were driving down profitability. The markets focused on the latter and punished the stock.
Bottom Line: Expense control and shareholder value are likely to remain the focus for the next few quarters.
Fed Comments
U.S. Federal Reserve chairman Jerome Powell made a much-publicized speech last week, noting that the “disinflationary process” has begun but that it may take “a significant amount of time.” These comments were particularly interesting since, in recent months, the Fed has been going back and forth between remarks that could be interpreted as hawkish and dovish. The market, for their part, seemed to take these as slightly dovish. But it’s important to note that Powell, with his reference to data dependency, left the door open for more rate hikes. This may have been a reaction to strong job numbers. Contrary to the market, we read Powell’s messaging as hawkish—clearly, the U.S. economy isn’t near a recession just yet, so the Fed seems eager to reserve the right to continue to raise rates if inflation proves more stubborn than hoped. That being said, as previously mentioned, recent job numbers are a reflection of the past, whereas job cuts that have been announced by companies but not yet carried out will be factored into future releases. As a result, unemployment can be expected to rise.
Bottom Line: Based on the Fed’s mixed messaging, we’re not sure they’re 100% confident on how many more rate hikes there will be (1 or 2 before the pause) and whether inflation will reach their 2% target this year.
Positioning
We’ve recently held our monthly positioning meeting, reaffirming our overall approach while making a few adjustments. There is no change to our allocation of equities versus bonds—we’re sticking with a balanced view, remaining neutral on equities, slightly bullish on bonds, and slightly bearish on cash. This is largely based on our expectation that recession risks have been pushed a bit further down the line, which makes us less concerned about corporate earnings in the short term, especially since the market didn’t punish companies as badly as some may have expected. The near-term earnings risk now seems to have subsided, while there is still upside to be had if and when the Fed announces a rate-hiking pause. The reason we’re not overweight equities is because job losses are still happening, and at some point, that will affect the economy. For a deeper dive into our portfolio positioning strategies, tune in over the coming weeks to our monthly House View report containing insights from across the Multi-Asset Solutions Team.
1 Theophilos Argitis, “Canadians Have Never Felt Worse About Their Finances, Poll Shows,” Bloomberg, October, 31, 2022.
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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