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We're back after a well-deserved summer break, and we're ready to share our analysis and advice on the financial markets with you. We've also taken advantage of this break to revamp our blog, making it more attractive and easier to read.
As always, expect relevant summaries of economic news, strategic highlights and expert recommendations based on our in-depth knowledge of the financial markets.
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Our portfolios at a glance
In the fascinating labyrinth of the investment world, some companies stand out as timeless pillars of innovation and resilience. Stanley Black & Decker, Inc (SWK) is one such entity. With a rich history dating back to 1843, this titan has consistently demonstrated its ability to adapt, evolve and lead.
At Pratte, our radar is finely tuned to such pillars, which is why the stock is part of our Pratte North American Equity Fund. Stanley Black & Decker's diverse product range underlines its exceptional versatility. From hand and power tools to advanced electronic safety solutions and healthcare innovations, the company's offerings are as diverse as they are essential. This breadth ensures a solid foundation, enabling the company to weather economic storms and tap multiple revenue streams.
The figures speak for themselves. From the dawn of January to the end of August, SWK's share price climbed from $76.19 to a remarkable $93.34. This increase, corresponding to a rise of around 25%, is not just a figure, it's a performance. It demonstrates operational success, strategic vision and a mastery of market issues. For our investors and stakeholders, this growth is not just an indicator; it is a promise of SWK's potential and a glimpse of the value it is ready to deliver.
Markets in brief
Monday
- Technology Titans lead the charge
The week got off to a strong start for the technology sector. Following a 2.6% rise last week, the tech giants continued their ascent on Monday. The Nasdaq-100 index followed suit, rising 2.3%. The spotlight was undeniably on industry heavyweights such as Apple, Amazon and Google. Amazon's strategic e-commerce initiatives and Google's advances in AI further fuelled bullish sentiment. The Federal Reserve's decision to maintain interest rates was the icing on the cake, historically favorable for technology stocks.
- Powell's speech: A balancing act
Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole Symposium last Friday was the talk of the financial world. His emphasis on the dual mandate of jobs and price stability, juxtaposed with the challenges of the pandemic, led to a mixed market response. While some saw a rise in equities, interpreting Powell's words as accommodative, others moved forward with caution. Bond yields fell slightly, hinting at a prolonged accommodative monetary policy.
- Evergrande's precarious position
Shares in the China Evergrande Group plummeted by a staggering 87%. The group's bankruptcy filing in the USA in July and its colossal debts of $300 billion sounded the alarm. Evergrande's request for government aid and its announcements of asset sales further undermined investor confidence. The repercussions of this situation are being felt throughout the world's financial markets, with concerns about potential knock-on effects.
Tuesday
- Wall Street rises unexpectedly
On Tuesday, Wall Street rose unexpectedly, particularly in the technology sector, while the S&P 500 celebrated its third consecutive day of gains. The U.S. Department of Labor's JOLTS report showed a drop in job openings to 8.8 million in July, the lowest since March 2021. While this may seem like bad news for job seekers, it signals a potential easing in the labor market and could persuade the Federal Reserve to refrain from raising interest rates further. The strong market reaction was also amplified by low activity on the New York Stock Exchange ahead of the long Labor Day weekend.
Wednesday
- Wall Street up slightly
Wall Street rebounded once again on Wednesday, closing higher after a tumultuous August. The rebound was partly due to the downward revision of second-quarter US GDP growth, which raised hopes of a more accommodative monetary policy from the Fed. In addition, the slowdown in employment growth reinforced optimism that inflationary pressures would ease. These factors, combined with positive expectations for future economic data, have restored investor confidence, despite an uncertain global environment.
- Economic data
US GDP growth for the second quarter was revised down from 2.4% to 2.1%. Following this news, markets adopted a "cautiously bullish" stance. Interactive Brokers economist Jose Torres pointed to a growing sense of optimism, suggesting that the slowdown in job growth indicated by the ADP report could help to moderate inflationary pressures. Craig Erlam, analyst at Oanda, raised the idea that if the current trend of slowing hiring persists, the Fed might consider ending its monetary tightening cycle.
- Technology sector :
Nvidia saw its share price rise by almost 1%. Other tech giants also contributed to NASDAQ's rise, including Apple (+1.92%), Netflix (+1.09%) and Alphabet (+1.06%). Salesforce, the leader in customer relationship management software, saw its share price climb by 5.91% after the market close, following the publication of better-than-expected quarterly results and an upward revision of its annual forecasts.
Thursday
- The NASDAQ shines, but the Dow and S&P stumble:
The NASDAQ continued its upward trend on Thursday, recording its fifth consecutive session of gains. However, the Dow Jones and S&P 500 fell by 0.48% and 0.16% respectively. These contrasting movements show that, while some segments of the market are optimistic, others remain cautious in the face of economic uncertainties. The stock market gains of the last few sessions have reduced the losses of a difficult month for the indices, which nevertheless ended on a monthly decline of more than 1%.
- Inflation and the Federal Reserve's outlook
Recent economic data show rising inflation in the United States. In July, the PCE index (Consumer Price Index for Personal Expenditures), used by the Federal Reserve to assess inflation, rose by 0.2% month-on-month. On an annual basis, it rose by 3.3%, compared with 3% in June. Excluding volatile items such as energy and food, inflation reached 4.2% year-on-year, exceeding the Fed's 2% target. Jeffrey Roach of LPL Financial confirms that these figures will influence future monetary policy, while noting a generally positive market reaction to the data.
- Toronto: A mixed performance
North of the border, the Toronto Stock Exchange closed lower. However, Shopify, the Canadian e-commerce platform, was a bright spot, rising by an impressive 11%. This came after the announcement of a partnership with American giant Amazon, demonstrating the importance of strategic collaborations in today's business world.
Friday
- Markets rise in response to unemployment rate
Markets reacted positively to the unexpected rise in the US unemployment rate, betting that this could prevent the Federal Reserve from tightening policy. The Dow gained 185 points, or 0.2%, while the S&P 500 rose by 0.3%. However, the NASDAQ recorded a slight decline of 0.1%.
- U.S. employment up despite slight rise in unemployment rate
In August 2023, the US economy added 187,000 jobs, exceeding forecasts by 170,000. However, the unemployment rate edged up to 3.8%. Average hourly earnings rose by 0.2% over the month. Healthcare and leisure saw the biggest increases, while transportation and information recorded declines. These data come as the Federal Reserve assesses its future monetary policy.
- Unexpected slowdown in the Canadian economy
In the second quarter of 2023, the Canadian economy surprised analysts by contracting by 0.2%, well below the Bank of Canada's 1.5% growth forecast. This contraction was mainly due to declines in real estate investment, exports and household spending. Forest fires also had a negative impact on several sectors, including mining and rail transport. The Bank of Canada, which had raised its key rate to a 22-year high of 5.0% in July, may reconsider its position at its next meeting, given these economic data. Markets have sharply reduced bets on an interest rate hike next week, reflecting reduced confidence in the robustness of the Canadian economy.
Philippe Pratte's comments: A revealing week for investors
In today's financial market landscape, it's essential to look beyond tech giants like Apple and Amazon. Stanley Black & Decker, with its historical trajectory, underlines the importance of long-term vision and sector diversification.
It's also worth pointing out that our PRM101 fund had an exceptionally good week, reflecting the quality of our investment strategy and our team's ability to identify and exploit market opportunities.
Moreover, the unexpected slowdown in the Canadian economy reminds us that, while markets are inherently unpredictable, they also offer opportunities for those equipped with the right analytical tools and a flexible, thoughtful investment strategy.
In the face of these challenges and opportunities, the importance of rigorous business intelligence, supported by in-depth research, cannot be underestimated. As portfolio managers, our responsibility is not only to expertly navigate these sometimes turbulent waters, but also to provide our clients and partners with relevant insights, based on factual analysis, to guide them in their decisions.
Philippe Pratte
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
This newsletter is intended to provide general market and security information and is not intended to address your specific needs. The views (including recommendations, if any) expressed in this newsletter are those of the author only and do not necessarily represent those of Pratte Asset Management and do not constitute investment advice for your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
