Entering the month of September, it appeared to many investors that North American equity markets were deeply oversold and due for a positive bounce. This was, in fact, the case as equity markets by early/mid-September were showing positive investment returns between 3.5 – 3.75%.

Notwithstanding the extremely oversold conditions of investment assets including stocks, bonds, commodities, and precious metals, the firming price trend reversed course with North American indices ending the month with meaningful September declines between 4.5 – 10%. No sector was left unscathed as interest rates rose, impacting bonds precipitously and both common stock and commodity prices plummeted.

Having just entered the final quarter of 2022, we believe that securities markets have significantly overreacted on the downside.

Given the extreme negative market sentiment and investor fears, we believe that any unexpected positive economic, geopolitical, central bank or inflation news could precipitate and propel a massive snapback of equity prices. This occurrence could produce a significant revaluation of common stock prices similar to previous market recoveries such as the meltdowns of 1987 and 2008/2009.

More importantly, we are confident with our ABC portfolio holdings and positioning of strong, diversified, large capitalization, dividend paying industry leaders, which can withstand the present market turmoil. We expect our portfolios to outperform with the eventual price recovery.

Moreover, as we enter the month of October, positive seasonal trends now provide a powerful tailwind for common stocks. Historically, the period from October into the spring has produced a significant proportion of the years’ investment return. Positive seasonality combined with the extreme bearish sentiment enveloping the market today should portend meaningful investment outperformance in the near future.

In conclusion, contrary to the present investment doom and gloom we remain optimistic as ever with regard to equities and our high-grade investment portfolios. We expect the recent peaking of inflation will lead to an eventual central bank pivot and a return to material positive investment returns entering 2023.

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

The positive stock market momentum during the month of July carried into August with considerable optimism. For instance: financial services, large capitalization American technology shares, industrials, and health care stocks enabled the various North American indices to reach new summer highs by mid August.

By the fourth week in August, however, common share prices started to slip with growing fears of a Federal Reserve 75 basis point interest rate increase and the short, but biting, hawkish monetary comments of Fed Reserve Chairman Jay Powell at the Jackson Hole Symposium on August 26th. The seriousness of Powell’s statement enervated investors’ market commitment and both the equity and bond markets tumbled and sold off to month end.

Interestingly, while the primary Federal Reserve motivator is the reduction of inflation, we have witnessed, especially in the greater Toronto area, a sharp decline in gasoline prices, a major inflation component. From the June 2022 high of about $2.30 a litre gasoline prices at the pump have fallen to $1.50 a litre. This is the lowest price in seven months. If the price declines further or even stabilizes at these levels this occurrence could positively impact inflation statistics and soften the North American monetary authorities serious battle to beat down inflation towards their 2% target.

Despite lower prices, a number of our ABC stock holdings did return positive results for this period including: Algonquin Power, Becton Dickinson, Brookfield Infrastructure Partners, Emera, Meta Platforms, TD Bank, Waste Connections, and Waste Management. It should be noted that we are committed to these securities and our equity portfolios, in particular, as we approach 2023.

Now entering the last four months of 2022, we expect: gradually lower monthly inflation reports and greater clarity with respect to interest rates and inflation; moderating weakness in North American GDP growth and stable employment data; respectable corporate earnings results; and more mergers and acquisitions and share buybacks due to relatively low equity prices, albeit, with rising borrowing costs and quantitative tightening.

In summation, we remain optimistic with regard to equities and expect stock selection to remain paramount as an eventual business recovery and a peaking of inflation and interest rates takes hold in 2023.

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

North American equity markets posted positive returns during the month of July. This was largely due to a substantial rebound in large capitalization U.S. technology stocks and a positive reaction to their Q2 quarterly earnings, which drove equity markets upward and surprised many of the investment pessimists.

Interestingly, this upturn transpired within an excessively negative investment environment with heightened concerns relating to rising interest rates and inflation, recessions fears, and the conflict in Eastern Europe.

The three ABC Funds greatly benefited from this market recovery with significant price appreciation and portfolio outperformance versus their respective benchmarks. This positive outcome was primarily attributed to our meaningful positioning in American equities including: Amazon, Apple, Adobe, Autodesk, Boston Scientific, Broadcom, Mastercard, NVIDIA, Salesforce, S&P Global, and Thermo Fisher.

Most notably, were the quarterly earnings results from ABC Funds’ favourites Apple and Amazon, which reported at the end of the month. Apple delivered a very strong quarter, beating analyst estimates on both the top and bottom line, and exceeding expectations for iPhone revenue. Additionally, Amazon reported better than expected financial performance, showing strength in cloud and advertising revenues and providing the street with robust forward guidance. These quarterly earnings were quite impressive given the challenging Q2 macro environment and in turn, their share prices appreciated substantially to reflect these surprisingly positive results.

Looking ahead, we expect equity markets to continue to climb a “wall of worry” despite relatively weak first half of 2022 economic data, geopolitical tensions, and uncertainty pertaining to interest rates and inflation. We are quite optimistic with regard to equities, however, we believe we are currently in a stock pickers’ environment and that security selection will be particularly important to investment outperformance. Furthermore, we foresee an eventual business recovery and a peaking of both inflation and interest rates that will ultimately lead to higher common stock prices over the next 6-18 months.

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

While North American stock markets ended the month of June with significant price weakness, we believe that there are a number of positive observations.

Firstly, there appears to be a noticeable disconnect between the weak stock market performance versus relatively good corporate quarterly results and developments. Furthermore, while investors have been concerned with elevated inflation and Federal Reserve tightening activity, it is interesting to note ten year U.S. Treasury yields appeared to have peaked earlier in the month at almost 3.50% to settle in at about 2.88% by June 30th. Additionally, there is tremendous investor negativity overhanging securities pricing with regard to the outlook for the economy, inflation, interest rates, and corporate earnings. We believe a number of individual securities presently offer excellent long-term performance potential.

Overall, we remain confident that markets will recover with any perceived stability and optimism with respect to inflation, the conflict in Eastern Europe, and U.S. Federal Reserve monetary tightening. Most importantly, we are very confident with our portfolio holdings, which offer quality, income, and solid potential for capital appreciation.

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

The month of May provided remarkable volatility for North American equity prices with considerable mid-month share weakness offset by a late month recovery. As a result, by month end the main North American equity indices closed flat to down slightly.

Although much of this volatility is a consequence of rising global central bank rates, inflation fears, and firming oil and gas prices, we are heartened by positive corporate earnings results, dividend increases, an upward sloping yield curve, and significant investor pessimism. Overall, we remain optimistic and are fully invested.

Of note, our top performing common stocks during the month included: TD Bank, TC Energy, and Enbridge in Canada, and Becton Dickinson, Thermo Fisher Scientific, Danaher, Broadcom, Activision Blizzard, and Autodesk in the U.S.

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

Equity and fixed income markets declined precipitously during the month of April as investor pessimism grew due to fears of rising interest rates, central bank monetary tightening, and Eastern European turmoil.

Although corporate earnings have been consistently positive, investor skittishness has enveloped the marketplace, putting investment fundamentals, no matter how positive, as virtually irrelevant.

A perfect example is the common stock of Activision Blizzard, held in all three ABC Funds. Activision Blizzard is the object of a $95.00 US cash takeover by Microsoft, which represented a premium of over 45% to Activision’s closing price in mid January 2022. However, the April 29th month end close of $75.60 was a 20% discount to the merger proposal. More importantly, one day later on April 30th, Warren Buffet announced at the Berkshire Hathaway annual meeting that Berkshire had purchased 9.5% of Activision’s shares as an attractive arbitrage deal. At this point, we believe that the takeover, already approved by Activision’s shareholders, will likely succeed.

Overall, it is our view that within the present risk-off financial environment, in numerous cases, the “baby is being thrown out with the bathwater”. Consequently, despite the current market turmoil we are sticking to our optimistic investment stance and our diversified portfolio holdings with the expectation of improved market sentiment and performance by year end 2022.

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

Equity markets during the month of March posted positive returns having “climbed the proverbial wall of worry”.

Specifically, the investor fears of rising interest rates, tightening central bank monetary actions, continued supply chain disruptions, elevated inflation, and the conflict in Eastern Europe did not impede improved stock prices.

All three ABC Funds provided positive performance during March and this is consistent with our optimistic investment outlook for 2022.

Top performing Canadian share holdings for the month included Algonquin Power, Brookfield Infrastructure Partners, Canadian National Railway, and Enbridge. Our leading American equities were Amazon, Apple, Broadcom, Meta Platforms, NVIDIA, S&P Global, Thermo Fisher Scientific, and Waste Management.

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

As we entered the month of February, investors’ primary macro financial concerns were higher interest rates, pending U.S. Federal Reserve tightening actions, and inflation.

The current geopolitical tensions at hand have caused considerable volatility in the financial markets, producing a major mispricing of common stocks.

We believe the present negative sentiment for equities will wane and investor rationality will be restored. Consequently, we are retaining our portfolio positioning with the expectation of improved investment markets this year.

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

Common stock prices started the month of January quite weakly and remained at these low levels until the last two trading days when they rallied significantly to record a strong finish. Despite this recovery, however, all major indices posted negative performance for the month.

On a positive note, we were very pleased with the solid gains of a number of our Canadian holdings including Royal Bank, TD Bank, CIBC, Enbridge, and TC Energy along with two ABC Fund favourites, Mastercard and Visa.

Of particular relevance to our present and future investment performance was the proposed takeover of Activision Blizzard (held in all three ABC Funds) by Microsoft (also held in all three ABC Funds) at a substantial price premium. We believe this takeover is not only extremely positive for both companies, but more importantly, adds credibility to our very optimistic investment outlook on gaming, the metaverse, and our portfolio positioning for 2022.

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

Volume 33, Issue 1

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