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.
Rumours of U.S. Housing Recovery Overestimated
March 6 to 10, 2023
Rumours of U.S. Housing Recovery Overestimated
March 6 to 10, 2023
Sadiq S. Adatia, FSA, FCIA, CFA
Market Recap
U.S. Housing Market
In January, the outlook for the U.S. housing market was starting to look optimistic—the consumer was spending, the onset of a recession looked to have been pushed back, and the U.S. Federal Reserve appeared to be approaching a rate-hiking pause. As a result, mortgage applications started to pick up. But the most recent U.S. inflation numbers, which came in higher than expected, changed everything. That’s caused a reversal of expectations, as investors now see several rate hikes ahead. That downside risk has caused housing prices to come off a bit again. Overall, caution is back in the market—for example, recent earnings reports from major retailers like Macy’s and Best Buy show decent current results but warn of potential trouble ahead. It all ties back to inflation: as long as it remains sticky, the Fed will continue to raise rates, and that will hold back the consumer and in turn the housing market.
Bottom Line: A significant uptick in U.S. housing prices is unlikely until the Fed gets closer to a rate-hiking pause.
Bank Earnings
Recent Canadian bank earnings can be read in several ways. For starters, every firm within the wealth management space is dealing with the aftereffects of last year, when we saw a significant destruction of wealth—in housing, in equity and bond markets, and as a result of higher interest rates. It’s no surprise that those factors have had an impact. But despite those headwinds, some Financials have held up relatively well in February compared to the broader market. In our view, that’s because they’re reasonably priced from a valuation perspective, and they provide a cushion on dividend yields. Returning to the earnings themselves, we think it’s a company-by-company story, with results contingent on how each bank is executing their strategic plans, how their loan loss provisions are working, how much exposure they have to the housing market, and so on. Going forward, we expect results to be more differentiated than what we’ve seen recently. This has been the case in the U.S., where we saw good numbers from JPMorgan but not from Wells Fargo. As JPMorgan CEO Jamie Dimon has noted, consumers are still spending, but they’re making choices with their spending patterns. The assumption is that the consumer will eventually slow down, but we don’t know when, or by how much.
Bottom Line: With the consumer relatively healthy (for now), bank performance can best be forecast on a case-by-case basis.
Tesla
Tesla is an interesting story. In November and December of last year, they experienced a steep decline in their stock price. But this was followed in January by a big resurgence when the market recovered. Tesla now seems determined to move down the price ladder, making their vehicles available for cheaper—they’ve correctly realized that to get the volume they’re looking for, they’ll need a car that works for the broader market. But that could impact their profit margins. The key here is that the electric vehicle (EV) market is becoming very competitive. Tesla had the first mover advantage, but there are now more choices for the consumer. It could be that Tesla’s decision to lower prices is a long-term gamble to make it tougher for the competition—Tesla can withstand lower margins, but less-established companies might not. If so, it’s a smart move. But even if Tesla is playing the long game, it will impact their margins in the short term, and raising prices down the road after consumer expectations have been set lower could prove challenging. Battery charging stations are continuing to open in more locations, and Tesla will seek to capitalize on that momentum. But as other companies start to increase their production, there will be more choices out there, and that competition will only increase as China reopens.
Bottom Line: EV prices are coming down but it’s not because of cost savings, which means that Tesla’s margins are likely to be affected.
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.
Insights
A Housing Head Fake
The ABCs of Alphabet’s Potential Breakup
Will a September Selloff Lead to a December Rally?
An Unusual Week: Jackson Hole and Q3 Bank Earnings
Nvidia Does It Again
BMO ETF Portfolio August Commentary: Summer Lovin’, Having a Blast