One year ago today, the Pyle Group moved over to our new home here at CIBC Wood Gundy and, in some respects, it feels just like yesterday, while other times it is like we have always been here. I could not be more proud of our team, both old and new members, and I couldn’t ask for a better team of branch management and wealth partners, from planning and insurance to our commercial and private bankers. Indeed, with the help of our senior planner Andrew Duncan, we have done a record number of plans this past year.  More importantly, I could not be more grateful for our clients, both old and new, and are thankful for the trust they place in us each and every day.

 

It has indeed been an incredible year. When we arrived here on that Labour Day weekend, Canada’s federal parties were beginning to unveil their platforms for the upcoming election, the Delta variant was forcing additional measures, such as the return to a mask mandate in Alberta, and third shots were being made available to immunocompromised individuals.

 

Financial markets were coming off a fairly uneventful summer with low volatility. The TSX closed at 20,821 on the Friday before the long weekend – a gain of about 4% since the start of June. That gradual upward grind would continue until the second quarter of this year and with this week’s about-face in market sentiment, we find ourselves about 2,000 points lower – roughly 8.7%. That is still better than the near 14% drop in the S&P500 over the same period.

 

Given all the attention to rising interest rates and impending economic doom, some may think that things were so much more rosier this time last year. In fact, we were coming off a negative quarter for GDP growth in Canada in Q2 and several North American indicators were pointing to economic fatigue, from housing to manufacturing sentiment.

 

US non-farm payrolls for August were expected to have come in with a blowout gain of over 700K, but rose only 243K.  Initial weekly jobless claims in the US had just fallen below 400K and, while they have been trending higher since this past spring, they are still hovering near 230K.  As for what happened to the August payrolls scene this year, it wasn’t bad at all. Indeed, some this morning have called it a “Goldilocks” report, with non-farm payrolls advancing 315K, but with a sizable jump in the number of individuals joining the labour market (participation rate rose 3-tenths to 62.4%, though that is still a full percent below the pre-pandemic peak). The unemployment rate notched up to 3.7% and average hourly earnings rose by a modest 0.3%.

 

Inflation and interest rates were certainly different back then.  In Canada, inflation was 4% in the month of August, compared to the latest print of 7.6% for July. US inflation was more elevated at 5.3%, yet now stands at 8.5%.  Gasoline prices in Toronto over that long weekend were in the $1.40/litre area versus about $1.55/litre today. It’s hard to imagine that prices were north of $2.10 just a few months ago. If you had purchased a 10-year Government of Canada bond this time last year, you would have received a whopping coupon rate of 1.5% and would have had to pay a premium for that bond, meaning your effective yield to maturity was only 1.2%. Today, that same term gives you a yield of 3.2%. That is, if you purchased that bond today.

 

The problem is that the price of that bond has fallen close to 15% since this day back in 2021 – a loss that is greater than what the TSX endured. As Ally and I have discussed with clients, this was a key reason why our bond portfolio was essentially devoid of government bonds heading into 2022; but this drop in the market since the time we arrived in our new office is also rare in our opinion, which is why we have slowly started to add back exposure.

 

What we didn’t imagine a year ago was how further polarizing the political spectrum in North America would become. The January 6^th riot in Washington was still fresh in our minds, but who knew that there would be protests in Ottawa at the start of 2022.  Then again, who knew that Russia would invade Ukraine and still be there six months later.

The early weeks here in our new home were indeed busy as we adapted to our new surroundings and assisted clients with their transition.

 

Doing this and maintaining a view on the world and portfolios wasn’t easy, but thanks to the team we have, it got done. Indeed, it is comforting to know that this Labour Day weekend will be a little labourious! What the world has in store for the coming year is anyone’s guess, but it is unlikely to be boring. This is why we have transformed the portfolios in recent weeks, become slightly more defensive and more income-focused. Once again, we want to thank all our clients and partners for this first of many great years to come.

 

Have a great long weekend everyone

Andrew Pyle

 

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These are the personal opinions of Andrew Pyle and the Pyle Group and may not necessarily reflect those of CIBC World Markets Inc.