Your portfolios in brief
This week we decided to tell you about our Pratte North American Equity fund as it has enjoyed a great first quarter 2023. Our fund has returned over 18% year-to-date. In fact, the Fundata platform ranked our fund first in its category for the first quarter of the year. This performance is the result of many hours of research and introspection to consider the many strategies we can adopt to improve our returns.
Our market-driven approach benefited from the environment and uncertainty of the first quarter to generate solid performance. The gap between the positive and negative expectations of analysts and economists is narrowing for most economic metrics as well as financial data, allowing us to navigate more effectively. Our approach to the changing probabilities of the market has solidified and we believe we can manage the many risks associated with this volatile economy.
During the first quarter, our portfolios' exposure to the technology sector generated attractive gains. We continue to focus on stocks that have not only strong, but sustained earnings growth, margins and profitability. In this new and evolving economic environment, we seem to have reached the peak of interest rates as inflation slows. The bond market is beginning to normalize as the spread on the 2- and 10-year curve improves, although it remains inverted. All of this is to say that the chances of a recession are diminishing and should create a favorable environment for our long-term strategies.
Nevertheless, volatility persists and will remain as long as the 2-year and 10-year curves are inverted and the uncertainty surrounding interest rates continues. However, at this point in the cycle, pullbacks could well create interesting buying opportunities.
Finally, after a difficult year, we are able to better see the picture and the environment that presents itself to us and finally, we are able to adjust our strategies and return to a norm in which the return vs. risk is interesting.
In short, we hope to maintain our momentum, continue to perform well and maintain our lead over the various indices while hoping to produce a positive next quarter, as well as the following ones, to make 2023 a success.
Do not hesitate to contact us, we are always available to discuss.
Stock markets in brief
The International Monetary Fund and the World Bank met this week in Washington, D.C., to discuss global economic developments and challenges ahead. The IMF announced that it has lowered its growth forecast for the global economy from 2.9 percent to 2.8 percent for 2023, but believes that the threat of a recession is diminishing in North America. The IMF expects the U.S. economy to grow by 1.6 per cent this year, up from the last forecast. Canada's economy is expected to grow by 1.5%. A similar scenario can be seen in Europe, which is expected to have positive economic growth as the risks of recession recede.
However, the IMF remains cautious as inflation continues to rise as do interest rates. "The likelihood of a hard landing has risen sharply," the organization said in its economic update.
The markets closed Tuesday's session in mixed order as investors exercise caution ahead of the release of the latest inflation data and the Fed minutes. However, the IMF's downward forecast did not seem to rattle investors as many had already factored a decline in economic health into their forecasts.
According to the CPI index released Wednesday, inflation slowed to 5% year-over-year in the U.S., up 0.1% for the month, compared to the 0.2% expected by analysts. The inflation report was welcomed by investors who are hoping that with this new data, the Fed will pause its upcoming interest rate hikes.
In recent months, inflation has slowed in Canada thanks to a strong job market, while Canada's economic health continues to surprise economists. Indeed, when the Bank of Canada first announced their intention to suspend rate hikes in January, they expected the economy to grow at an annualized rate of only 0.5% in the first quarter. Early indicators show growth of about 2.8%, defying expectations of a decline and potential recession.
On Wednesday, the Bank of Canada unsurprisingly announced that it would keep its policy rate at 4.5%. In short, the Bank expects CPI inflation to decline rapidly to around 3% by mid-year, and then fall more gradually to the 2% target by the end of 2024.
Despite a slight decline on Wednesday, the indices were back on the rise on Thursday, supported by encouraging inflation figures. Released Thursday, the PPI producer price index for March showed a 0.5% decline on the month. The decline, which was the largest in three years, was driven by a slowdown in energy prices. "Producer prices are clearly on the downward slope...this makes one optimistic," commented Chris Low, chief economist for FHN Financial. "For the Federal Reserve (Fed), which is already inclined to pause its rate hikes soon, this report will weigh even more, especially after the CPI consumer price index" released Wednesday.
After ending higher on Thursday, the markets continued their slight advance at the opening Friday, helped by the start of the quarterly earnings season. The major U.S. banks reported better-than-expected results on Friday after the collapse of Silicon Valley Bank and Signature Bank last month. Indeed, JPMorgan Chase unveiled record revenues that exceeded analysts' expectations and its stock started the session up more than 5%. The same scenario for City Group and Wells Fargo, which both reported better-than-expected results, causing their shares to jump at the opening of the market.
"The crisis surrounding the major banks revolves very much around their cash flow to support their customers' deposits. Not only did the major banks report better than expected results, but they showed no signs of deposit weakness. Their quarterly results were eagerly awaited by investors to get a pulse on the health of the U.S. banking sector and to ensure that there are no cracks," said Philippe Pratte.
Here is the average for the week of the three main indexes at 1 p.m. Friday.
And here's the average for the week for the TSX in Canada.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
This newsletter is intended to provide general market and security information and is not intended to address your specific needs. The views (including recommendations, if any) expressed in this newsletter are those of the author only and do not necessarily represent those of Pratte Asset Management and do not constitute investment advice for your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.