November 2022 Portfolio Management Team Update
By Elvis Picardo, CFA®, CIM, Portfolio Manager, iA Private Wealth
November 29, 2022
Market Review
Global equities staged an unexpected rally in October for the second time in four months, as investors shrugged off concerns about inflation and rising interest rates, as well as a near-meltdown in UK government bonds triggered by political uncertainty in the nation.
The TSX Composite gained 5.3% in October, reversing its 4.6% decline in the previous month, for its best monthly performance since November 2020. The TSX energy and technology sectors recorded double-digit gains, while the consumer discretionary, health care and industrial groups also gained 7% or more in the month.
The S&P 500 rebounded 8.0% in October, recovering from a 9.3% plunge in September that took it to a two-year low. The Nasdaq Composite managed to only pare part of its 10.5% tumble in September with a 3.9% advance, as index gains were weighed down by substantial declines in technology heavyweights including Meta, Amazon, Microsoft, and Alphabet on disappointing earnings. The Dow Jones Industrial Average was the standout performer in October as it soared 13.95% for its best monthly performance since 1976. Major indices in Europe and Asia also posted strong gains in October. (Data Source: FactSet).
Our Strategy
Equity markets have rebounded nicely from the two-month bout of selling that took the TSX and S&P 500 below 18,000 and 3,500 respectively in mid-October. Both the indices have gained about 13% from those lows, with the Dow Jones surging 18% and the Nasdaq up 9% since then.
With inflationary pressures seemingly having peaked, investors are pinning their hopes on central banks easing up on the aggressive interest rate hikes seen so far this year. On November 10, the S&P 500 gained as much as 5.5% after a report showed headline inflation of 7.7%, the lowest since January. However, the Federal Reserve and the Bank of Canada have been quick to downplay expectations that interest rates may peak anytime soon. At the present time, both central banks are forecast to raise their benchmark rates by 50 basis points in December.
The Portfolio Management Team (PMT) undertook its biannual asset allocation review in the first week of November, with the consensus economic view being that a recession was quite likely in 2023, which could trigger additional downside in equity markets. Based on these views, we marginally lowered our target equity allocation and boosted our weight in the fixed income sleeve. In our large Perennial-class portfolios, we have added high-quality defensive stocks such as Fortis and Brookfield Renewable Partners, while reducing our allocation to index ETFs. The PMT believes that these changes position client portfolios to withstand renewed market turbulence while participating in an eventual recovery.
Please contact any member of the PMT if you have any questions or concerns regarding your accounts.
Please contact any member of the PMT if you have any questions or concerns regarding your accounts.
This information has been prepared by Elvis Picardo, who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.
