The strength of the equity market in the first half of 2023 continued into the month of July. Interestingly, this advance confounded many of the investment pessimists who have prognosticated an impending economic recession, given that both the Bank of Canada and the U.S. Federal Reserve increased interest rates during the month. Also notable during this period was Fed Chairman Powell’s statement that the Federal Reserve upgraded its 2023 economic forecast and does not anticipate a recession for the balance of the year.

Clearly, both the U.S. and Canadian economies have demonstrated remarkable resilience in the face of rising interest rates, significant recession concerns, and stubbornly high, albeit, declining inflation. However, a major positive factor that the pessimists are overlooking is corporate earnings results. For instance, over 70% of Q2 company results have beaten analysts’ expectations, including results from major corporations such as Caterpillar, Intel, Meta, Comcast, Alphabet, and General Electric. These results are impressive, and obviously, investors have taken note, pushing up year-to-date returns of the NASDAQ and S&P 500 over 31% and 19.5% respectively.

Our three ABC Funds provided notably positive returns for the month, and more impressively, excellent year-to-date outperformance. Individual ABC top performers this past month included: Adobe, Meta, Alphabet, NVIDIA, Activision Blizzard, Zoetis, Danaher, Becton Dickinson, Thermo Fisher Scientific, ServiceNow, and Autodesk.

Now entering the last five months of 2023, we remain optimistic with our diversified portfolios and anticipate positive results to year-end.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

North American equity markets extended their upward ascent during the month of June and ended the first half of 2023 well into positive territory. This appreciation occurred despite continued central bank interest rate hikes, economic uncertainty, persistent global inflation, and an opaque corporate earnings landscape.

Remarkably, equity markets have continued to climb the proverbial “wall of worry”, with the S&P 500 rising over 15% and the Nasdaq Composite increasing over 31% for the first half of 2023. This performance defied all bearish prognostications, demonstrating the strength and resilience of the markets. Most noteworthy, it appears that there is still significant investible cash sitting on the sidelines anxiously awaiting a wishful market selloff. This did not occur during the first six months of 2023.

Our three ABC Funds capitalized on the positive momentum in June, posting excellent returns and adding to our impressive year-to-date results. In particular, three sectors lifted our performance: information technology, communications, and consumer discretionary. Other positive factors included:

• Prioritizing U.S. equities versus Canadian equities
• Focusing on large capitalization securities
• Maintaining fully invested portfolios
• Our U.S./Canadian dollar hedge to mitigate currency risk

Particularly notable was that our top three ABC Funds holdings, Apple, Microsoft, and NVIDIA reached new all-time highs during the month of June. Additional contributors to our performance included: Adobe, Becton Dickinson, Broadcom, S&P Global, Meta, Honeywell, Amazon, Mastercard, Visa, and Waste Management.

Looking ahead to the second half of 2023, we remain very optimistic and expect North American equity markets to continue scaling the “wall of worry” to higher levels. Our ABC portfolios are well diversified, and we believe their composition positions them favourably to navigate an evolving market landscape.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

Our three ABC Funds significantly outperformed their index benchmarks during the month of May. This positive result can be largely attributed to the Funds’ portfolio overweighting in two top performing sectors – information technology and communication services – and notable geographic concentration in American equities accounting for 70-85% of our common stock exposure.

Apple, Alphabet, Broadcom, Meta, Microsoft, and NVIDIA were key contributors to our success due to stellar quarterly earnings results and the market’s realization of their significant future growth prospects in generative AI. This is understandable given our front page editorial in our January 2023 ABC Perspective which emphasized that:

“… we believe that we are presently on the verge of a Cambrian explosion of innovation that will dramatically alter our lives and elongate the secular bull market in equities for years to come. In particular, we see artificial intelligence (AI) as the principal agent of technological advancement and the overarching theme in the next leg upward for common stocks. In this regard, AI technology has the potential to reshape the world, boost productivity, and elevate corporate profits. For instance, AI will power self-driving cars, robotics, virtual/augmented reality, simulations, genomic sequencing, and new drug discoveries. Our portfolios are well positioned to take advantage of secular themes in technology, including AI, via core holdings such as Apple, Microsoft, Amazon, Alphabet, NVIDIA, and Thermo Fisher Scientific.”

Capitalizing on a number of common stock outperformers, we tactfully rebalanced our portfolios to add new positions in ASML, ServiceNow, and Canadian Pacific Kansas City. Looking ahead, we remain extremely confident with our three well-diversified portfolios and expect their positive performance to continue throughout 2023.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

During the month of April, the North American equity markets continued their impressive climb upwards, defying the predictions of many investment pessimists who had forecasted lower corporate earnings results, higher U.S. Federal Reserve administered rates, and an impending economic recession.

The equity markets instead showed remarkable resilience, with this overhanging investor pessimism appearing to have been a contrarian market indicator, as the major stock market indices have ascended the proverbial “wall of worry”.

Interestingly, the indices were driven higher in April due to the outperformance of large cap information technology stocks and ABC Funds’ favourites including: Microsoft, Meta, and Alphabet, which all delivered better than expected corporate earnings results.

Additionally, our portfolios benefited from the impressive performance of Becton Dickinson, McDonald’s, Zoetis, S&P Global, Mastercard, Honeywell, and Boston Scientific in the United States, and TC Energy and Enbridge in Canada. In a number of cases, these holdings are reaching new 12-month and all-time highs.

This outperformance led to our three ABC Funds posting positive returns during the month of April, but more importantly impressive year-to-date investment performance.

With the completion of the first four months of 2023, we remain fully invested, expecting a continuation of the positive market trends to year end and beyond.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

In March, global securities markets were influenced by substantial financial and economic news flow, such as the unforeseen regional banking crisis, which triggered massive deposit withdrawals resulting in a concerted rescue action by several big money centre banks and various U.S. government authorities.

This precarious setting, along with the pre-existing interest rate uncertainty, enervated investors and compounded the gloomy investment sentiment, despite a benign macro economic outlook. As a contrarian indicator, this bearish overhang presented as a bullish bellwether.

In the face of the overall market negativity, our ABC Funds exhibited exceptional outperformance for the month of March and their year-to-date benchmarks. This performance can be attributed to four appreciating sectors and specific ABC Funds’ holdings in consumer discretionary, healthcare, communications and information technology. ABC Funds’ standouts included Amazon, McDonald’s, Becton Dickinson, Boston Scientific, Thermo Fisher, Activision Blizzard, Alphabet, Meta, Adobe, Apple, Broadcom, Microsoft, and NVIDIA.

As we enter the second quarter, we anticipate the stock market recovery to continue, underpinned by economic resilience, strong corporate earnings, and moderating inflation.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

Despite the early month optimism, North American equity indices slid into negative territory by the end of February. This decline was mostly due to lingering concerns about elevated inflation, U.S. 10 year treasury bond yields creeping towards 4%, and ongoing restrictive central bank monetary policies. Surprisingly robust North American economic activity and employment data also contributed to the decline.

Notably, with growing investment interest in large language models and generative artificial intelligence (AI), our three ABC Funds outperformed their respective benchmarks in February. This was due to the exceptional performance of two key investment holdings: NVIDIA and Meta, held in all three ABC Funds.

During NVIDIA’s earnings call on February 22nd, CEO and company founder, Jensen Huang made a significant statement regarding the current state of artificial intelligence: “AI is at an inflection point, setting up for broad adoption reaching into every industry. From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI.”

While our portfolios are well-diversified, they are positioned to capitalize on AI’s tremendous growth potential, anchored by industry leaders leveraging the power of AI to drive transformative innovation, increase productivity, and boost corporate profits.

Looking ahead, our outlook remains optimistic regarding the North American economic and investment prospects for 2023. As a result, we expect common share prices to saw-tooth their way to higher levels.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

The month of January produced remarkable investment performance, carrying forward a significant recovery from the lows of 2022. In retrospect, common stocks ended December unduly depressed and this past month’s extraordinary recovery was a powerful snapback, with the technology sector providing robust investment torque.

The investment shift to a more positive sentiment during January was largely the result of unexpectedly good corporate earnings results, steady economic growth, decelerating inflation, and lower market interest rates.

Interestingly, it appears investors have begun a meaningful migration out of commodities and defensive stocks and back into information technology, growth, and high beta securities. We expect this rotation to continue, which should provide a positive tailwind for our ABC portfolios.

Reviewing our January performance, all three ABC Funds outperformed during the month. Our main portfolio outperformers included Adobe, Alphabet, Amazon, Apple, Autodesk, Meta, NVIDIA, S&P Global, Visa, and Zoetis.

In fact, following yesterday’s market close, Meta announced exceptionally strong financial results and positive forward guidance. Consequently, Meta closed up 23% in today’s trading session.

Additionally, we believe there remains a substantial pool of uncommitted cash on the sidelines, which we expect to be deployed into equities within the year. In summation, we remain very optimistic about the economic and investment prospects for 2023.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

After two consecutive months of positive equity returns, the North American stock market indices declined across almost all industry sectors in December.

As we previously commented last month, investors have been deeply fixated on the monetary actions of the U.S. Federal Reserve and their data-dependent approach to combat inflation. Interestingly, the December economic data produced both strength, weakness, and confusion. For instance: November unemployment payrolls, factory orders, and new home sales all improved, whereas retail and vehicle sales, durable orders, housing starts and existing home sales all declined.

Despite the U.S. inflation rate’s second monthly reduction to 7.1%, the Federal Reserve continued to apply its aggressive inflation-fighting policy and increased the benchmark Federal Funds rate by 0.5% at their December meeting. Consequently, this central bank action rattled securities markets causing price weakness into year end.

In looking back over 2022 and into 2023, investors’ heightened concerns over global central bank monetary tightening has enervated any appetite for common stock and fixed income securities. In fact, investors are so focused on elevated inflation and fears of an impending recession that they are overlooking a resilient economy, respectable corporate earnings and profit margins, and declining energy prices.

With pervasive negative sentiment overhanging the securities markets, we believe that investors are “throwing out the baby with the bathwater”. In our view, investors are over-reacting with their bearishness. We believe that the glass is half full rather than half empty. As a result, we anticipate that 2023 should bring forth lower interest rates, a more accommodative central bank interest rate environment, and solid corporate earnings. We expect increased company share buybacks and mergers and acquisitions due to severely undervalued common stock prices.

We are confident with our three ABC Funds portfolio holdings which encompass numerous larger capitalization and dividend-paying beneficiaries of any market recovery in 2023.

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.