2023 3rd Quarter Market Review

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Significant market shifts and emerging opportunities have marked the third quarter of this year. Let’s review some of the key stock performances, summarize the prevailing market trends of the quarter, and think about what lies ahead for investors.

Market Opportunities

Over the past few quarters, we’ve consistently highlighted specific market opportunities we believe are poised for growth. These opportunities include demographic technology, profitable technology names, pharmaceuticals, medical devices, and energy, with a particular focus on production, energy services, and infrastructure. Another area of interest is energy transportation. Industries with a high regulatory burden appeal to us due to their inherent barriers to entry.

While the current outlook of investors is quite bleak, the quotes of many quality companies are discounting a significant amount of economic pain.  Should the bleak outlook be overdone by a small margin, stock prices should quickly regain their footing. Companies with brand strength pricing power that provide a critical solution to their clients and customers remain our filters for existing and new investments.

Interest Rate Dynamics

A primary concern for investors this quarter has been interest rates. Historical data, tracing back to 1960, reveals two clear cycles of interest rates, with a potential third cycle emerging. These cycles encompass rising interest rates, peaked in 1982, followed by a decline leading up to 2020 and the recent surge post-2020. While the current rates are noticeably higher than a few years ago, they are not exceptionally high in a broader historical context. It seems to us that we are witnessing a readjustment of asset prices considering the “higher for longer” interest rates expectation.

Demographics and Housing

Of late, there have been many discussions around demographics, specifically related to housing. The politicized topic of immigration has been at the forefront, with Canada seeing an almost doubling of new immigrants in 2022. When juxtaposed with monthly housing starts, it’s evident that the number of new houses constructed does not align with the influx of new entrants. This disparity affects housing prices and availability, especially given policy decisions.

Market Performance: Canada and U.S.

The US markets have been dominated (if not carried) by the performance of 7 large technology companies that make up nearly 30% of the total value of the U.S. S&P 500.  The breadth of leaders in Canada is equally focused, with the energy sector being the sole sector contributing positively to the S&P TSX.


Sectors usually associated with a defensive posture in a portfolio, such as pharmaceuticals, consumer staples, or utilities, have had significant downlegs in their prices during the third quarter.

On one hand, investors expect a significant economic slowdown in light of significantly higher interest rates.  Interestingly, the defensive sectors have been the laggards in performance to a select few sectors that tend to do well in periods of economic growth.  The stock market, comprised of all investors, is sending mixed messages about future economic expectations.  What is clear to us is that many current stock quotations are quite attractive from a valuation perspective.

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