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Join Peter Hodson, CFA and Ryan Modesto, CFA as they discuss the markets over the last year and themes and opportunities they see looking ahead for the i2i Long/Short US Equity Fund. 

New Report

We have posted a new report on Toromont Industries (TIH). TIH operates as a specialized equipment rental and dealership for construction, and it also designs and installs refrigeration systems for the industrial markets. TIH has proven its industry-leadership and its operations have proven to be resilient over the past year. Shareholder value creation, earnings expansion, and growing dividends - we feel that this name is worth taking a closer look at. 

Read the latest updates by logging in here!

Flash Report

We have posted a flash report update on eight of our coverage companies. In the reports, we see companies showcasing resiliency in the face of slight margin compressions and a challenging economic backdrop. There are many important factors impacting company valuations, balance sheet strength, and forward growth estimates within these reports that we feel can help investors navigate the current investing climate. 

Read the latest updates by logging in here!

Report Update

We have posted a report update on Gildan Activewear (GIL). The company operates as a manufacturer of basic apparel including activewear, underwear, hosiery, and so forth. It is a large-scale, vertical integration operator that owns strategically located facilities and controls all aspects of the production process. Strong free cash flows have resulted from its competitive advantage in the activewear industry, and we feel that this name offers insights into the consumer cyclical space.  

Read the latest updates by logging in here!

Investor Sentiment Survey - RESULTS!

Thank you to all those that participated in this past market update's Investor Sentiment Survey. We have published the results from the survey in a report in the link below. Please note that the weightings and categorization of these results are still a work in progress, and the model(s) used to analyze the results may change over time as more data comes in.

Investor sentiment is continuing to improve, with a sentiment stance around a 'neutral' level. Notable results include the majority of members expecting interest rates to be flat or lower over the next 6 to 12 months and a convincing response that inflation will be lower one year from now. This is the highest sentiment reading that the survey has reached since launching in July 2022. For reference, the lowest reading that the survey has reached was ~18/100 in October 2022, whereas the reading today is ~49/100. 

Survey Results

We look forward to releasing another round of the Investor Sentiment Survey at the next market update!

Market Update

The markets have been grinding higher over the past couple of weeks on a slight change in tone from the Federal Reserve that the process of disinflation has begun, as well as a pause in interest rate hikes by the Bank of Canada. The growing chorus from committee members is that the job is not yet complete, but positive early signs of inflation cooling are underway. Earnings season is in full swing with an overarching emphasis from companies on improving efficiencies. Oil has been hovering around a $70 to $80 range for the past few months as optimism over recovering demand from China has offset rising stockpiles. There has been an increasing curiosity about whether we will head into a recession this year, and in this market update, we aim to uncover what this might mean for the markets. 

Is There a Pending Recession?
There has been lots of chatter over the past year about a pending recession, and this has caused anxiety in investors all across the board. Many have been talking about an incoming recession, but how exactly will we know if we are in a recession? And when will we know if we are in a recession?
 
A recession is often described as a substantial contraction in economic activity that permeates throughout a country for more than a few months. Across the US, the National Bureau of Economic Research (NBER) decides when recessions occur. NBER uses various economic metrics such as real personal income, nonfarm payroll employment, real personal consumption expenditures, wholesale-retail sales, and industrial production as the basis for their determination of an official recession.
 
Past Recession Timelines
Investors won’t consider a recession official until declared by the NBER. However, let’s examine the timeline of past recessions, including the declaration date, actual start date, and end date.
 
Looking back at the past six recessions, on average NBER announces that a recession has started roughly nine months after the official start date. For example, the recession of 1980 started in January of 1980 but investors were not aware of this start date until six months later in June of 1980. Following along with this example, the recession of 1980 actually ended one month after it was announced, in July of 1980. Looking at the far right-hand column, on average recessions end roughly 3 months after NBER announces that we are in a recession.

Source: nber.org

This begins to muddy the waters for a lot of investors that are looking for clarity on when the recession has started, or when it is safe to invest in the markets again, but the reality is that almost as soon as NBER declares that a recession has started, we’re almost out of it.
 
The markets are forward-looking and tend to reach a low during the recession and before NBER has declared its start. This can be difficult for investors seeking to invest in a ‘recessionary bottom’, as the exact timing of the bottom for the financial markets and the start of the recession is never crystal clear.

Historical Average Timeline
A visualization of the average scenario that occurs with most recession announcements and endings is as follows. A recession starts due to weakening economic metrics but it is not announced on average until nine months following when NBER has seen the data to prove that a recession started. This is the point in time when the public is fully aware that the economy is in a recession. Although, on average the recession ends a short three months after it is announced, and by this time economic data is beginning to improve and the financial markets are heading higher based on an improving economic outlook.

Source: 5i Research

Whether or not the economy slips into a recession has yet to be determined, but one thing that we can have some level of confidence in is that if we are to be declared in a recession, chances are it will not be long until we are out of the recession. We feel that the fears of a recession have their merits, as no one wants to envision a weakening labour market or tightening credit conditions, however, the silver lining is that by staying invested in the market and continuing to invest in the hard times one can ensure that if a recession is announced, they have invested in a period of time with historically high forward returns.  

Best wishes for your investing!

www.5iresearch.ca