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Some days you just have to shake your head and wonder what type of gray matter traders on Wall Street have between their ears. On Wednesday, Jay Powell gave one of the most expected increases in interest rates since Alan Greenspan’s tenure at the helm. The final nail in the coffin should have been the 10.7 million job openings up from 10.2 million the previous month announced on Tuesday. Mr. Powell has taken a rigid approach to fighting inflation which means he will likely not stop raising short term interest rates until inflation trends lower in a significant way for a sustained period of time.

Granted, the Bank of Canada surprised investors with a 0.5% increase last week and correctly adopted (in our opinion) a bit of a slower approach to future rate increases. We just hope the Federal Government does not undermine their efforts by shoveling boat loads of cash to pork barrel projects injecting too much liquidity into the economy creating additional sources of inflation. Regardless, the latest employment figures on both sides of the border means we will get additional rate hikes next month. We do not expect to see material reductions in inflation data next week which means we could get more turbulence in markets on Thursday and Friday ( yes stock markets are open on Remembrance Day.) In addition, Wall Street will need to digest earning’s reports from over 2700 US companies plus 590 Canadian companies (actually there might be some double counting by the news wires) and right now investors are in no mood for misses on any kind of metrics (sales, net income, future guidance) so fasten your seatbelts and expect more turbulence.

On the other hand, we also believe Wall and Bay Streets may end up throwing the baby out with the bathwater. This week, we note Qualcomm reported a 22% increase in quarterly revenues and for the year their profits jumped 43% (Qualcomm Link). Unfortunately, the CEO also provided negative guidance for the First half of 2023 due mainly to a drop in cell phone demand. The Stock plunged from $112.50 to $103.88 the next day. However, he also stated, the longer-term outlook is quite positive. The stock is now trading at 8 times forward earnings and pays a 2.86% dividend. (Did we mention they have a long history of increasing its dividend each year?) To put in perspective, the quarterly dividend was $0.62 in 2019 and today it is $0.75.

As you know we use a process for managing investment portfolios and this one is definitely on our watch list. And with the ongoing slash and burn approach in N.Y. we believe we will see more outsized moves for quality companies. So, in addition to sifting through tech wrecks, we are also closely following financials and energy companies for opportunities to add to our holdings. We don’t want to sound like a broken record, but we believe we are in a long-term secular bull market for energy and historically, financial service companies make more money when interest rates go up. And according to the bond managers we talk to, the outlook is very positive for fixed income investors as well.

Bottom line, we see opportunities developing as we head into the year end and feel your patience will be rewarded.

Happy trading and Stay safe out there.

Steve Bokor, CFA

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