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.
From Soft Landing to No Landing?
From Soft Landing to No Landing?
Sadiq S. Adatia, FSA, FCIA, CFA
Chief Investment Officer (CIO), BMO Global Asset Management
Market Recap
Market Expectations
Last week, yields on six-month U.S. Treasuries topped 5% for the first time in over 15 years. What does that say about the market’s expectations? First, it’s an indication that investors think inflation will be sticky and not necessarily come down in a straight line. The easy part of tackling inflation is over; the hard part—the stickier stuff—is what remains, and that needs to be priced in. We expect central banks to remain aggressive, and markets are increasingly sharing this view, with evidence that the U.S. Federal Reserve could hike rates more than a couple of times in the coming months. This development also shows that the economic environment has changed. Not so long ago, many investors were expecting an interest rate plateau and potentially even rate cuts sooner rather than later. We thought this was overly optimistic, and we’ve proven to be correct. The economy has held up better than expected, and as a result, a potential recession has been pushed further out, meaning fewer job losses than expected and less of a reason to cut rates this year. For months, the two camps in the recession debate have been soft landing vs. hard landing. Now, there’s a third option: no landing. The market seems to be exactly attuned to the Fed’s expectations, and that doesn’t happen often.
Bottom Line: The market’s expectations have shifted, and a recession now looks less likely.
New Data
Bottom Line: The overall job market remains relatively strong despite much-publicized layoffs.
Sentiment vs. Reality
Bottom Line: Investors say they’re nervous, but their actions tell a different story.
Positioning
When we evaluate our positions, we think about short- and long-term outlooks. Energy is a great example. In the short-term, we expect a sideways market or slight movement lower. That’s a good time to sell calls to generate additional income, which we’ve been doing. But in the long term, the benefits of China reopening and demand outweighing supply should boost energy prices. Plus, energy companies—which is what we’re really invested in—are profitable and have access to cash, which should help on the earnings side. And those companies remain under-invested in, so there’s the potential for more investment to push prices upward. Taking a step back, it’s still a choppy market—we’ve seen that in February so far. That’s why we continue to utilize a ‘collar strategy’ in our portfolios, in which we sell calls and buy puts. We aren’t expecting a smooth ride—economic data, Fed comments, earnings numbers, and other factors all have the potential to upset the applecart. In that kind of environment, we want to make sure we have the protection of options in our portfolios, and we’re willing to trade off some upside to do so.
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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