Key Points
Market Overview
- Sector Performance:
- Strongest sectors: Financials and Precious Metals.
- Weakness in tech, industrials and consumer.
- Inflation Expectations:
- Inflation expectations have reached nearly 30-year highs.
- Focus remains on sectors that perform well in inflationary environments.
Portfolio Positioning
- Sector Allocations:
- Financials: Largest overweight for over a year.
- Energy & Materials: Maintained overweight positions.
- Industrials: Held at equal weight.
- Technology: Reduced to 6% (vs. S&P’s 28%).
- Defensive Sectors (Staples, Healthcare, Real Estate, Utilities): Maintained underweights due to inflation concerns.
- Cash sits at 6-9%
- Macroeconomic Considerations:
- Global monetary easing amid inflation could be challenging.
- Stronger PMI data historically benefits Materials, Energy, Industrials, and Financials.
Earnings and Market Sentiment
- Earnings Growth:
- S&P 500 earnings growth at 16%, best since Q2 2022.
- Financials contributed 30% of earnings growth.
- Market Trends:
- Volatility remains within normal ranges.
- Breadth has weakened slightly, leading to a 6-9% cash position.
- S&P 500 down 1.3% for the month, aligning with historical trends for a U.S. presidential cycle.
- Historically, a 3%+ market gain by mid-February has correlated with positive full-year returns.
Market Risks and Opportunities
- Global & Geopolitical Factors:
- European equities and financials (e.g., EZU, EUFN ETFs) positioned to benefit from an end to hostilities.
- Energy Sector Outlook:
- Weakness in Canadian energy stocks linked to tariff concerns.
- Natural gas stocks have been a recent focus.
- Precious Metals & Currency Hedging:
- Gold remains a preferred hedge over bonds in inflationary environments.
- Physical gold ownership (e.g., PHYS ETF) recommended as a risk hedge.
- Financial Sector Strength:
- Canadian and U.S. banks expected to continue benefiting from current economic conditions.
Music Fund Update
- Upcoming Webcast on Music Fund Next Wednesday:
- Sector focus: Music as an investment class.
- Not market-sensitive or economically sensitive.
- Provides inflation protection and generates strong cash flow.
- Over seven years of research and investment in this space.