Dear customers and readers,
We hope you enjoyed the Pratte Financial Lab mailing you received this week. We are proud to present this initiative, developed and analyzed by our team, to keep you informed of the latest economic trends and analyses.
On August 30, 2023, our portfolio management team met to fine-tune our strategies by scanning current trends in the U.S. and Canadian economies. This approach enables us to identify the changing landscape of the North American economies, providing an overview that can guide our investment decisions.
This session was an opportunity to synchronize our knowledge and refine our strategies, enabling us to navigate the current economic landscape with insight.
If you haven't already done so, we invite you to read the Lab on our website, pratte.ca, and immerse yourself further in our analysis.
Thank you for your continued trust. Now it's time for the blog!
Your portfolios in brief
Workday (WDAY) is a company that stands out for its remarkable spirit of innovation in technology, and is an integral part of our portfolio at Pratte.
Company profile: Workday
This American company is a leading player in the field of financial services and software solutions for human resources management. It offers a range of integrated cloud-based solutions, facilitating the optimization of business operations crucial to companies in a variety of sectors.
Highlights of 2023
During 2023, Workday persisted on its innovation trajectory, significantly expanding its influence in the technology sector. Here are a few points of interest:
- Deployment of an advanced suite of analytical tools: In September, the company inaugurated a sophisticated suite of analytical tools enabling companies to deepen their understanding and management of data. These tools provide real-time analysis and actionable insights, facilitating informed decision-making.
- Strategic collaboration with Microsoft: Workday has also formalized a strategic collaboration with Microsoft aimed at strengthening data integration between the two platforms, guaranteeing greater transparency and enhanced management of corporate data.
Share performance
Since the beginning of the year, Workday's share price has shown significant growth. It started at around USD 220 and peaked at USD 280 in August, representing an increase of around 27%. More recently, the share price has shown remarkable stability, remaining at around 260 USD, demonstrating its resilience in an otherwise highly volatile market.
Workday: a player to watch
Workday has distinguished itself through sustained growth and perpetual innovation. Thanks to its cloud solutions, the company is able to respond effectively to the growing demands of companies in terms of data and human resources management. Its strategic alliances, notably with Microsoft, demonstrate its dedication to remaining at the cutting edge of technology.
Analyst and investor outlook
Analysts are generally positive about Workday, converging on a moderate Buy recommendation. Investors, for their part, remain vigilant as to the company's recent developments, in particular its innovations and strategic collaborations, which could potentially catalyze a significant rise in the share price.
At Pratte, we are convinced that Workday represents a valuable asset for our portfolio. Its commitment to innovation and its consolidated position in the technology sector make it a wise choice for any investor looking to diversify his portfolio with a reliable and growing technology company.
Market in brief
Tuesday
-Sharp fluctuations on stock markets
Stock markets witnessed notable volatility on Tuesday, mainly orchestrated by rising interest rates and worrying economic signals from China and Europe. Leading indices such as the Dow, NASDAQ and S&P 500 all suffered significant falls, reflecting an unfavorable investor response to recent macroeconomic news. This trend indicates a phase of uncertainty and vigilance in the markets, where investors may be reconsidering their investment plans in the face of a fluctuating market environment.
-Global economic trends
Global economic developments also had a significant impact on market trends on Tuesday. In China, the Caixin index revealed a slowdown in growth in the services sector, although it still points to expansion. Simultaneously, the Eurozone saw a decline in the composite PMI index, falling to its lowest point since the spring of 2020. These events indicate that the world's major economies are facing growing obstacles, which could influence financial markets in the near future.
-Oil market dynamics
On the oil front, Brent crude fell to US$90 a barrel, in response to the decision by OPEC+ leaders to maintain supply restrictions until the end of the year. This measure aims to balance the market by further reducing global reserves, although it has also exacerbated inflation fears. Specialists at Goldman Sachs have warned that this tactic introduces upside risks into their oil price forecasts, envisaging situations where Brent could surpass US$100 a barrel under certain conditions.
They also point out that there could be a period of considerable uncertainty and potential volatility on oil markets in the months ahead.
-Movements on the corporate bond market
The market also saw billions of dollars worth of corporate bond transactions, significantly influencing liquidity and the US dollar. This wave of debt sales has been mainly propelled by an exceptionally busy corporate bond release calendar, as the market emerges from the summer season. Experts believe that this selling pressure could be a response to the anticipation of this month's crucial economic data and future interest rate decisions by the Federal Reserve.
Wednesday
-Bank of Canada decision: Stability and vigilance
The Bank of Canada has decided to maintain its key interest rate at 5%, a strategic pause after the consecutive increases of the previous months. This decision, anticipated by experts, comes against a backdrop of economic slowdown, marked by a 0.2% contraction in the second quarter of 2023, mainly due to a drop in real estate activity and the impact of forest fires.
Despite current inflation of 3.3%, above the 2% target, the Bank remains on guard and is ready to adjust the policy rate if necessary to ensure price stability. It continues to monitor inflationary dynamics closely, while maintaining a policy of quantitative tightening. The next meeting is scheduled for October 25, when a cautious assessment of economic trends will continue.
-A declining market
Wall Street markets closed lower, with the Dow Jones losing 0.57%, the NASDAQ falling 1.06% and the S&P 500 down 0.70%. This downward trend is mainly attributed to profit-taking and the lingering shadow of inflation hanging over the market.
Other highlights of the day included the performance of Nvidia, down 3.05%, closely followed by Amazon (1.39%) and Alphabet (0.98%). These declines had a significant impact on the NASDAQ, with these four companies alone accounting for a quarter of the index.
What's more, the VIX volatility index, although having risen slightly in recent days, remains at a very low level, indicating a relative absence of nervousness or fear in the market. This suggests that investors do not see many positive elements likely to stimulate the market in the near future, especially with the arrival of September, traditionally a difficult month for equities.
-Growing concerns in China
The economic situation in China is causing growing concern on world markets. The Chinese government's recent targeted measures, contrasting with a vast stimulus plan, have sown doubt among investors, creating "unease" in the market, as Steve Sosnick of Interactive Brokers pointed out.
In August, China saw its exports and imports decline significantly, reflecting weakened external demand and sluggish domestic consumption. Analysts are sceptical about China's ability to meet its 5% annual growth target, due to a number of factors, including a deepening property crisis and a slowdown in credit growth.
The repercussions of China's economic contraction are being felt worldwide, influencing financial markets and economies dependent on trade with China. The coming months will be crucial in assessing the effectiveness of China's economic stimulus measures in reversing this trend, with the financial world keeping a close eye on future developments.
-Apple in trouble
Apple was particularly hard hit on Wednesday, losing over $100 billion in market capitalization, a drop of 3.58%. This fall was partly due to restrictions imposed by Chinese authorities on the use of iPhones in government agencies, a measure that also extends to other non-Chinese phone models. This news had a domino effect on other tech giants and contributed to the overall fall of the NASDAQ.
Thursday
- Stock market fluctuations
Wall Street had a day of fluctuations, mainly influenced by moves in the technology sector. The S&P 500 cut its losses by more than half, thanks to an advance in defensive groups such as utilities and healthcare. However, the NASDAQ 100 underperformed, mainly due to Apple's fall. The Dow Jones Industrial Average rose slightly, indicating a mixed performance in the market.
-Focus on Apple
Apple's share price fell sharply, losing around 6.5% of its value in two days and wiping US$190 billion off the company's market capitalization. Apple's situation has become a focal point of market discussions. Apple suppliers such as Qualcomm and Micron Technology also experienced declines, indicating a ripple effect in the technology sector. Technology stocks saw a significant rise in 2023, fuelled by the frenzy around artificial intelligence and speculation about future interest rate hikes by the Fed.
-Fed monetary policy
Investors also kept a close eye on the latest economic data, with strong jobless claims figures strengthening the case for the Fed to keep interest rates high. Federal Reserve Bank of New York President John Williams mentioned that U.S. monetary policy is "in a good place", but that officials will need to analyze the data to decide how to proceed with interest rates.
-Overview of the Canadian labour market
In August 2023, Canada saw notable changes in its labor market. The unemployment rate remained stable at 5.5%, despite a steady rise in previous months. Quebec recorded a minor drop in its unemployment rate, from 4.5% to 4.3%. The country added 40,000 jobs, mainly in the professional services and construction sectors. However, population growth outstripped employment growth, resulting in a slight drop in the employment rate to 61.9%.
The Canadian labour market exceeded expectations in August, with wage growth of 5.2%, beating forecasts of 4.7%. This positive trend was also reflected in the valuation of the Canadian dollar, which appreciated by 0.5% against the US dollar. However, faster population growth than employment growth points to a more relaxed labour market than in the previous year.
Friday
-Cautious optimism
The markets opened Friday's session slightly higher, despite a generally unfavorable week. The S&P 500 was up 0.2%, while the NASDAQ was up a more significant 0.5%. However, the Dow Jones remained relatively stable.
Against this backdrop, Brad McMillan, Chief Investment Officer at Commonwealth Financial Network, shared a nuanced perspective on the current state of the markets. He noted that August was a difficult month, characterized by weak economic data, and that September could follow a similar trend. However, he remains optimistic about the long-term outlook. McMillan believes that a recession is still a long way off, which should enable the markets to maintain a degree of health. He suggests that, despite short-term difficulties, markets could see a stabilization and recovery in the months ahead, underpinned by solid economic fundamentals.
Philippe Pratte's comments: A volatile week
In a week punctuated by volatility, we observed financial markets evolving in a climate of uncertainty. Major index fluctuations and warnings from China reinforced the need for heightened vigilance. In response to the latest news, we strategically reduced our position in Apple. Despite the current turbulence, measured optimism predicts a possible sustained stabilization of the indices in the months ahead.
Market players are on constant alert, dynamically adjusting their strategies in response to economic news and central bank guidance. While the Bank of Canada maintains rate stability, attention will turn next week to inflation data from the United States.
In conclusion, this turbulent week calls for cautious and agile navigation of the financial markets, with careful monitoring of the various financial indicators and economic developments.
Philippe Pratte
