Market & Economic Environment: North American indices started the third quarter on a solid note, following a historic rally in Q2 that pared most of their steep Q1 losses. The TSX Composite gained 4.2% last month, its best monthly performance since April, as all 11 industry groups advanced. Surging gold mining and forestry stocks made the Materials group the best performing sector in the month with a gain of 13.1%. Four other groups also posted gains of at least 5% in the month – Consumer Staples, Information Technology, Utilities and Industrials. In the U.S., the S&P 500 gained 5.5% in July to erase its loss for the year, while the Dow Jones Industrial Average advanced 2.4%. The Nasdaq Composite surged 6.8% to reach a record high by month-end and bring its YTD gain to 20.4%. European equity indices were mixed, while the giant emerging markets of China, India and Brazil posted an average gain of 9% in July.
(Data Source: FactSet).
Our Strategy: Record levels of fiscal stimulus and low interest rates have enabled most major economies to dig themselves out of the economic crater caused by Covid-19. But while the economic damage is still being repaired, bellwether indices like the S&P 500 and MSCI AC World index are now within striking distance of their record highs set in February. Part of this disconnect is due to the growing dominance of the technology sector in market capitalization-weighted indices, exemplified by the outsize contribution of the FAANG stocks in the S&P 500 and Shopify in the TSX Composite. The stellar performance of these technology giants during the “Great Lockdown” has caused investors to stampede into them, in the belief that they will continue to outperform in all market conditions.
While we are concerned by such unbounded optimism in an uncertain economic environment, we are encouraged by the substantial recent gains in some of our portfolio stocks such as Qualcomm, Disney and Manulife, after they reported quarterly results that exceeded expectations. With late summer having been an exceptionally volatile period in recent years, the Portfolio Management Team (PMT) remains vigilant about changing market conditions and will make tactical adjustments to client portfolios as required.
Please contact any member of the PMT if you have any questions or concerns regarding your accounts.
