In this week’s webcast, we focus on risk management in a market defined more by geopolitics and energy flows than by traditional macro drivers. We maintain a capital preservation stance, hold above-normal cash, monitor positions closely against key support levels, and avoid redeploying capital indiscriminately in a volatile environment.
The Strait of Hormuz is the most important near-term variable, given its significance for global oil and LNG flows. Oil remains highly volatile, yet broad equity markets continue to show more resilience than the headlines alone imply.
Within our portfolios, energy continues to provide the clearest leadership, particularly among Canadian producers, while breadth weakens and volatility rises across other areas of the market. We respond by trimming exposure where price action deteriorates, including in financials, and by keeping cash elevated where appropriate.
Macro conditions remain mixed: US employment data softens somewhat, rate-cut expectations are in flux, and earnings expectations and operating margins generally remain constructive. For now, the near-term market outlook depends less on the macro cycle and more on whether the current oil shock fades or persists long enough to weigh on growth.
Key Takeaways:
Capital preservation remains our priority
- Portfolio cash levels are above normal, positions are being monitored individually, and holdings that break below support are being exited and not immediately replaced. In several cases, sold positions are being moved to the “farm team” and may be revisited if conditions stabilize or relative strength re-emerges.
The Strait of Hormuz is the key near-term market variable
- We draw a clear distinction between the broader conflict and the duration of the strait closure, identifying the latter as the more important market driver. With 20% of global oil consumption and 22% of global LNG moving through the Strait of Hormuz, any sustained disruption would have direct implications for oil prices, inflation expectations, and growth.
Markets remain volatile and headline-driven, but broad indices have held together
- Price action has been changing quickly across oil, equities, and volatility, with conditions highly fluid. The S&P 500 and TSX have held up better than the headlines alone might suggest, indicating that markets are not yet pricing in a prolonged worst-case scenario.
Energy continues to show leadership
- Energy was already improving before the latest geopolitical developments, supported by stronger technicals, improving relative strength, and a longer-term backdrop of underinvestment. Recent events have reinforced that view, with Canadian producers such as CNQ, Suncor, Headwater, and Tamarack Valley cited as continuing to hold in well.
Risk has been reduced where breadth and price action have weakened
- Breadth indicators have been weakening over the past few weeks, volatility has risen, and cash weights have been increased across the firm, now representing over 20%. Financial sector exposure has also been reduced, including the sale of US regional banks after weak US jobs data and the exit from Santander after it broke support amid uncertainty around its exposure to the MFS insolvency in the UK.
Macro remains relevant, but oil is driving the near-term outlook
- The macro backdrop is described as mixed: US employment data has softened somewhat, rate-cut expectations have increased, and a new Fed chair is expected in May, while earnings expectations and operating margins have remained constructive. For now, however, the next move in markets will depend primarily on whether the energy shock fades or becomes prolonged enough to shift from inflation pressure toward demand destruction and weaker growth.
Share this insight
Please Note
All content provided on this website is for informational purposes only. The owner of this site makes no representations as to the accuracy or completeness of any information on the site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at any time and without notice.