July 14th, 2023

Q2 2023 Strategy & Market Reviews

Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Second Quarter of 2023. You can download the full reports via the links shown below.


“The US government won’t default on its debts. There are plenty of jobs. Unit-labor-cost inflation is moderating. The banking crisis is abating. The recession is still a no-show. Earnings were better than expected during Q1 and are probably bottoming during the [second] quarter. The FOMC likely will pause its rate hiking for at least one meeting (they did). Summer is coming. No wonder the S&P 500 sailed to a new 2023 high yesterday.”

That is a summary of “what’s going on” according to respected market-watcher Ed Yardeni, and it’s generally music to our ears, even if it’s not coming from Marvin Gaye…  In other words, his views closely match our own. On June 8th, less than a week after Yardeni wrote this, the S&P500 officially entered a new bull market, up more than 20% from its 52-week low in October 2022. 

During the second quarter, the S&P500 total return was +8.7% in US dollars or +6.4% in Canadian dollars, as the Canadian dollar appreciated about +1.5 cents. The TSX total return was +1.1%. While given technology stocks continued to dominate the performance of the S&P500, we saw considerable widening in the breadth of performance late in the quarter as the market began to price in the possibility of a soft landing rather than a recession.

In terms of valuations, the TSX and the FactSet European index are trading at 10% and 5% discounts to their 20-year averages, respectively. The S&P 500 is trading above its historical average, but this is arguably skewed by a handful of large companies.

Indeed, the 10 largest S&P 500 companies by index weight have outperformed by almost 4x over the past 12 months, and we own five of them (Apple, Microsoft, Alphabet, Facebook and United Health Group). We are balancing these higher-growth holdings against attractive value-oriented names like GM, Elevance Health, Royal Bank, and Rogers Communications, among others.

Overall, we remain constructive on the equity market, notwithstanding the recent rise in prices. While corrections commonly occur during bull markets, we believe that the positive economic fundamentals that we observe should limit the downside. The earnings outlook is improving and, with economic growth slowing but likely not turning strongly negative, interest rates are closer to a peak than a trough, suggesting that equity market valuations are also less of a headwind going forward than they were in early 2022.

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities


During the quarter, our overall equity exposure was unchanged at 94%. Within the North American investments, our US equity exposure increased from 40% to 42% while our Canadian exposure decreased from 54% to 52%. Cash was unchanged at 6%. 

Currently, our portfolio is positioned toward value-oriented stocks (including financials, consumer discretionary, industrials, energy and materials), which make up 58% of the portfolio, although this has declined from 63% on December 31st. Exposure to growth stocks (including healthcare, information technology and communication services) increased to 34%, up from 29% on December 31st. 

We added the following new stock positions during the 2nd quarter: 

Quebecor Inc. is a Canadian diversified media and telecommunications company based in Montreal. The acquisition of Freedom Mobile has opened a large avenue of growth for a company that has been traditionally restricted to the province of Quebec. We see a long runway ahead for Freedom that is not reflected in the present share price. 

Novo Nordisk is the world’s leading diabetes and obesity pharmaceutical company with a market capitalization of approximately US$360bn. Its Ozempic drug is now the most prescribed GLP-1 product. The company has demonstrated high margins and free cash flow, and a ~45% dividend payout while continuing to invest in its drug pipeline. 

Applied Materials is a leading supplier of advanced equipment, tools, inventory, and maintenance services to logic, memory and analog semiconductor companies. We see the company benefiting from the growth in digitization, automation, and AI, plus onshoring of semiconductor supply chains and a rebound in capital spending.

A detailed review of each company can be found in the full report per the link above.



Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities


After generating strong gains during the first quarter, global equity markets also continued their upward climb during the second quarter. On a total return basis, the STOXX Europe 600 index returned +2.7%, the Nikkei 225 index was +18.5%, and the Nasdaq gained another +13.1%, taking its year-to-date gain to more than 32% –  its best first half of a year since 1983.

Despite these returns, a great deal of pessimism remains in the market. Several commentators continue to warn about a forthcoming recession. Most are concerned about the potential for a recession in the US given elevated inflation, aggressive monetary tightening, and the fallout from the collapse of several regional banks. Despite these concerns, the U.S. economy has demonstrated remarkable resilience and consumers continue to spend. 

US housing was one of the hardest hit sectors in 2022, but recent data suggests that we could be on the cusp of a rebound. New home sales jumped 12.2% to the highest level since February 2022. A potential rebound in U.S. housing is significant given that the housing sector is one of the largest and most important sectors of the U.S. economy, contributing an estimated 15-18% to GDP.

Inflation continues to move in the right direction as measured by the consumer price index. According to recently published data from the U.S. Labor Department, the inflation rate for the month of May cooled to its lowest annual rate in more than two years.

The global economy is growing at a modest pace, inflation has been moderating in both the U.S. and Europe, and consumer confidence has recently improved in the US. Corporate earnings have proved to be more resilient than the market was expecting. Taking all of this together, we remain cautiously optimistic as the second half of the year gets underway.

During the quarter, we initiated several new positions. In portfolios invested in our Global strategy, we added Applied Materials, Deckers Outdoor, Novo Nordisk, RELX, and YUM! Brands. In the International strategy, we invested in ASML, Hoya, Sony, and YUM China.

A detailed review of each company can be found in the full report per the link above.


Owen Morgan, MBA, CFA
Portfolio Manager, Fixed Income


In reverse to what happened in Q1 of 2023, interest rates across the Canadian yield curve shifted higher in Q2, with the more pronounced moves occurring in the short to medium term terms. The slope of the curve also steepened negatively. Typically, longer-dated bonds offer more yield given the additional risks inherent in lending money over a longer timeframe. However, at present, and as has been the case for the past year or so, the curve is “inverted,” with higher rates at the short end of the curve than the long end. 

The primary factor influencing fixed income markets was inflation and central bank policies to address it. While inflation continued to decline on a year over year basis, some underlying trends clouded market sentiment and dulled risk appetite. For example, the April CPI reading of +4.4% marked the first time in 10 months that this figure rose. Even though it dropped back to +3.4% in May, it still looks a long way from the Bank of Canada’s stated annual inflation target of 2%.

Meanwhile as described above, economic growth as measured by GDP slightly exceeded expectations during the quarter, as did employment and wage growth statistics. On the surface, this may seem like positive news, however it is negative news from an inflationary perspective, as a stronger economy increases pricing pressures. These factors caused the bond market to reassess the probabilities that interest rates would be “higher for longer.” 

Our expectation is that inflation will continue to decrease, albeit in a slower and less linear manner, and that we are very close to the end of the rate hike cycle, perhaps after one more increase in mid-July here in Canada.

Given the shape of the yield curve, and that it is inverted, the most attractive rates are in the shorter end. We see opportunities in existing issues that are trading below par, and therefore offer higher tax-advantaged returns for taxable investors. At the same time, we have identified some attractive new issues, such as short-dated bonds from some of the major Canadian banks offered with a 5.5% coupon. 

All in all, it has been a solid first half of the year, and we remain constructive on fixed income as a place to allocate investment funds.