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Volume 12, Edition 16 | May 30 – June 2, 2023

Stay in Control of Your Investments

Doug Walters, CFA
As we put the debt ceiling drama behind us, we take one last moment to extract an investing lesson from the spectacle.

Contributed by Doug Walters, Max Berkovich, David Lemire, Eh Ka Paw

As we put the debt ceiling drama behind us, we take one last moment to extract an investing lesson from the spectacle. Despite all the doomsday headlines, a deal was made with broader congressional support than we have seen in many years. Investors who found themselves caught up in the story have an opportunity now to reset and refocus.

A debt ceiling bill was passed overwhelmingly by the House on Wednesday and the Senate on Thursday, paving the way for the President’s signature. The bill is a two-year agreement, sparing us from the circus for a while. We discussed the debt ceiling in the previous two editions of Insights (Keep Your Investments Sunny Side Up and Politic-Proof Your Portfolio). Our message was twofold: don’t be distracted by the media sensationalism, and politics should not drive your investments. But stepping back, there is a more significant lesson.

As investors, we must clearly delineate what we can and cannot control. We cannot control the political whims of Washington. We cannot control if we get hit with another pandemic. We cannot control whether stocks rally or crater. We just can’t. In the short-term, all these are out of our control. But we do control how we invest and how we prepare for what we cannot control.

Investing is a long-term endeavor. As soon as you stop treating it as such, you are no longer investing; you are speculating. Successful long-term investors don’t stress out about the “crisis du jour.”. Instead, they focus on ensuring that:

  • They are always invested at the right level of risk for their long-term needs,
  • They have a well-diversified portfolio that avoids concentrated risks,
  • They invest in securities aligned with their philosophy (for us, that is evidence-based factors),
  • They regularly look to rebalance to sell high and buy low systematically.

Of course, there is more to investing than that. But staying true to these four principles helps avoid the distractions that can lead to damaging, impulsive decision-making and keep you on a path to achieving your great life.

Headline of the Week

Jobs vs. Ceiling

Nice to see some semblance of bipartisanship in Washington. Equally nice to see some level of efficiency as the deal to lift the debt ceiling worked its way through Congress at a blistering pace (relative to most other Congressional happenings). The deal was largely greeted with a big sigh of relief as the market never really priced in anything other than a last-minute solution. The bigger headline was the monthly jobs report.

The Fed’s job just got a bit more complicated (if that is even possible). Earlier in the week, Fed-speak hinted at taking a “pause” to assess previous interest rate increases’ and banking issues’ impact on the real economy. The thinking leaned towards anything other than a really strong report would have the Fed heading to the sidelines. Well, the report was a surprise to the upside.

Employers added 339k jobs, and previous job gains were revised higher. While the unemployment rate rose, so did the labor participation rate (for those in the prime age range). Beneath the strong headline were mixed messages that could support either camp in the “to raise or to pause” debate. The Fed now heads into its quiet period ahead of its next meeting, so markets will be left to hash and rehash previous comments should any new economic data alter the rate calculus.

The Week Ahead

The debt ceiling drama is over, and we can shift our attention to the economy with PMI, GDP numbers from Japan and the European Union, and several central bank rate decisions on the calendar.

Can I buy an I?

The service sector has been strong so far this year. The purchasing managers Index (PMI) from the Institute of Supply Management (ISM) released on Monday is expected to maintain an expansion reading. However…

  • The Index is expected to follow the manufacturing flavor of the survey and shift down a bit.
  • The manufacturing release read another month below 50, indicating a slowdown; avoiding the dip below the 50-mark from the services sector is hugely important.
  • PMI is an important leading indicator but needs other indicators to confirm its results.
  • April factory orders are another thing to keep an eye on.

Another Round

Gross Domestic Product (GDP) from two major regions, Japan and the European Union, will have another round of revisions. Australia’s central bank has a rate decision as well as Canada’s.

  • While no change is expected, a revision either way from the previously reported number will lead to market gyration.
  • We already know that Germany reported another quarter of negative growth in Europe, so avoiding a negative revision for the continent is important.
  • Japan, on the other hand, seems to be besting expectations. Will it do it again?
  • The Reserve Bank of Australia surprised markets with a hike last month, and with inflation running hotter than expected, we may need another hike from down under despite the softening economy.
  • The Bank of Canada has been on pause since March, but the labor market is heating up, and so is inflation. This may signal a need to hike.

Oily Situation

The Organization of the Petroleum Exporting Countries (OPEC) is scheduled to meet on Jun 4th.

  • Theoretically, it is OPEC+ since it includes Russia and controls 40% of the global supply.
  • In April, the group cut production by 1.16 billion barrels per day.
  • Oil prices have moved lower since, but there is a lack of consensus on whether more output cuts are in the cards.
  • According to experts, the decline in crude prices is coming from the demand side, so the group may want to pass on changing output at this meeting.
  • Also, members’ cuts may allow Russia to take market share, something Saudi Arabia is not too keen on.
  • The big drama going into this meeting is that Reuters and Bloomberg news agencies were not invited to the meeting as well as two Wall Street Journal reporters who usually receive an invite.

The Apple Cart

Apple Worldwide Developers Conference in Cupertino on Monday should captivate both techies and investors.

  • Look for virtual reality (VR), augmented reality (AR), and artificial intelligence (AI) to be the buzzwords.
  • New chips, a new MacBook, a mixed-reality headset, and iOS17 should be revealed at the event.

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