October 19th, 2023

Q3 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 Third Quarter of 2023. You can download the full reports via the links shown below.


Last quarter, we discussed the likelihood of a soft economic landing given that economic growth was slowing but likely not turning negative, and that the earnings outlook was improving. Since then, market consensus has shifted to agree with our view. The Federal Reserve is also now more positive, with forecasts of higher growth, lower unemployment, and improving inflation. The trade-off appears to one more rate hike expected in 2023 and only two rather than four rate cuts expected in 2024.

As a result of the Fed’s more hawkish tone, the 10-year US Treasury bond yield increased to as high as 4.61% as of this writing, which is a level not seen since 2007. The S&P 500 is also down -6.6% from its July 31st bull market high, and we think this is mostly due to the competition with higher bond yields.

The competition between equity valuations and bond yields can typically resolve itself in a few ways: Bond yields can decline (which should happen if the Fed’s projections for inflation are correct), the earnings outlook can catch up (which effectively lowers the valuation of the market), and/or the market can pull back (which has been happening for the past two months).

US manufacturing activity has continued to decline, but the pace of contraction seems to be slowing. There have been historic examples in the mid-1980s and mid-2010s when soft-landing slowdowns like this have subdued inflation without recessions. It remains possible that the current inflation gets resolved without a recession or any serious long-term implications.

The market often bottoms well ahead of the economy, and it would appear this time is no exception. Some of the best times to invest are when it’s most uncomfortable to do so. We remain cautiously optimistic about equities. While we can’t rule out a further market pullback, we believe the underlying economic fundamentals are improving, the earnings outlook has turned positive, interest rates have peaked or are close to it, and all of these factors should limit the downside as we look out to 2024.

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities

During the third quarter, the S&P500 total return was -3.27% in US dollars, or -1.22% adjusted for Canadian currency. The TSX total return was -2.20% over the same period.

During the quarter, our overall equity exposure was unchanged at 94%, with cash making up the balance. Our split between US/Canadian equity exposure also remained unchanged at 42% and 52% respectively. We continued to position our portfolio toward value-oriented stocks, which make up 58% of the North American portfolio. This declined from 63% on December 31st, while exposure to growth stocks increased to 34%.

We added two new stock positions during the quarter:

In Canada, TFI International, Inc. provides freight transportation and logistics services. It operates through four segments: Package & Courier, Less-than-Truckload (“LTL”), Truckload, and Logistics. The LTL market has just become less competitive with the recent dissolution of Yellow, a large competitor. With Yellow gone, TFII should gain volume and be able to increase prices. Further, we’ve bought TFII while the shipping industry is weak. Any recovery in general volumes will be accretive to earnings. 

In the United States, Oracle Corporation is a technology company that provides database management, enterprise resource planning (ERP) and human capital management (HCM) applications. Oracle’s business has analogies to Microsoft as it is using its strength in software applications to drive its database and cloud infrastructure businesses. The company has accelerating organic growth due to 1) increasing cloud application revenue, and 2) increasing cloud infrastructure revenue. We think it has a reasonable valuation with earnings expected to grow in low double digits over the next couple of years, faster than the market overall, but it trades at market PE multiple.

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 a strong first half of the year, global stocks markets took a breather. Equity market declines in North America were matched in Europe and Asia, with the STOXX Europe 600 index falling by 2.5%, and the Nikkei 225 down 4.0%. Nonetheless, global markets have generated respectable year-to-date gains, led by the NASDAQ’s stand-out +26.3% performance.

One of the biggest surprises of 2023 has been the absence of a recession, particularly in the United States. The consensus view at the end of 2022 was that the U.S. economy was headed for a recession in 2023. Instead of a recession, the economy has been resilient, despite the most aggressive interest rate tightening cycle since the 1980s.

In fact, real GDP growth in the U.S. is on pace to hit +2.2% in 2023, while inflation has moderated significantly. Many investors believe that we are at the tail end of the U.S. Federal Reserve’s interest rate tightening cycle. Why has the U.S. economy been so resilient? First and foremost, a strong labour market, with the U.S. unemployment rate near 50-year lows.

Both Europe and China remain in a period of stagnation with sub-par economic growth. The European economy suffers from high energy and borrowing costs combined with soft demand from export markets such as China. In China, policymakers are struggling with issues related to the property sector. On a positive note, China’s factory output expanded in September for the first time in six months, fuelling hope that the economy is in the process of bottoming out. 

This year, we have added to our weight in technology. The tech sector generates superior growth to the overall market, above-average returns on invested capital, robust free cash flow, and strong balance sheets. In addition, many of our holdings significantly cut their cost base in anticipation of a recession that did not happen, and stand to gain attractive operating leverage as a result.

The global economy continues to grow at a modest pace and inflation has been cooling. The U.S. manufacturing industry has improved for three consecutive months and could soon move from contraction to expansion. Corporate earnings were resilient during the second quarter and were ahead of consensus expectations. Taking all of this together, we remain positive about the markets as we head towards the finish line in 2023.

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

Heading into the third quarter of 2023, investors had reasons for optimism. Inflation had fallen very consistently for a year and measured 2.8% by the end June, not all that far off from the Bank of Canada’s 2% target. The economy, although slowing, was still producing positive output. In addition, the unemployment figures remained surprisingly robust.

However, in July and August, the downward trend in inflation reversed itself. While higher energy prices and shelter costs (mortgage interest cost) experienced notable upheaval, the underlying acceleration was also significant in its breadth, with inflation for goods, services, and wages all surging.

As a result, expectations that the Bank of Canada’s hiking cycle was at an end were diminished, although perhaps not quite extinguished. Our view remains that we are close to the end of the rate hike cycle, with likely one more increase by year-end here in Canada. The possibility that rates will remain elevated for longer is looking more likely, although this can change.

We believe the odds of a recession occurring in Canada have risen since our last update. Economic growth as measured by year-over-year GDP growth has decreased fairly consistently since mid-2022, although we note it remains positive as of the latest readings. We continue to believe that a recession, if it occurs, will likely be shallow. The unemployment rate has risen modestly from its low of 4.9%, and currently sits at 5.2%, but this is well below the long-term average of 6.9%.

We maintain our focus on higher-quality credit, including federal, provincial and agency bonds, and corporate bonds from investment-grade issuers. We also maintain a small weight in non-investment-grade credits with attractive yields and select opportunities.

We continue to find many of the more attractive opportunities in the shorter-dated tenors (0-3 years). We believe that the yield curve will slowly revert to its normal, upward sloping shape, however this may take longer than previously anticipated. In the meantime, yields are very attractive, and we remain confident about fixed income as a place to allocate investment dollars.

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