Tug of War: Economic Signals are saying hold on, but the markets are saying 'who cares?'

The Week in Review

If you just went by the markets this past week, you’d say that after three consecutive down weeks, things appear to be back on track. We saw a strong rebound, driven by strong performance in the tech sector. This week we saw the S&P 500 up nearly 3%, the Nasdaq surging by 4%, and both the TSX and Dow Jones up more than ½%.

The market moves were driven by strong earnings reports from major tech firms, including those in the "Magnificent Seven", whose earnings outstripped expectations.

But, before we get too carried away, it doesn’t escape me that in contrast to the strong earnings reports, some widely tracked economic indicators presented a mixed picture.

 📉 Economic Growth Slows: For example, U.S. GDP growth for the first quarter slowed to 1.6%, down from 3.4% in the previous quarter, and fell short of economists' forecasts (2.5%). This indicates a cooling economic environment.

👖 Persistent Inflation: On the inflation front, we see the challenge continue, with the Federal Reserve’s preferred gauge, the Personal Consumption Expenditures Price Index, showing a core inflation rate of 2.8% year-over-year for March, still well above the Fed's 2% target. This slow progress on inflation is another signal that that interest rates may remain elevated for longer than previously anticipated.

📊 Mixed Sentiment and Market Outlook: Consumer sentiment dipped as inflation concerns weighed on U.S. consumers, according to the latest University of Michigan sentiment survey. At the same time, we have upcoming events like the Federal Reserve policy meeting on Wednesday and new employment data which will have their usual influence on market dynamics.

📈 Rising Bond Yields: Lastly on economic updates this week, yields on U.S. government bonds continued to climb, with the yield on the 2-year Treasury surpassing 5.00% for the first time since last November. Again, this is a sign of continued economic and inflation concerns.

So, we have a mixed signal out there, with the markets saying everything’s ok, but the economic data warning us to keep our eye on the ball. As is always the case, it’s a classic tug of war to see who wins this current battle.

In this Edition of The Pulse:

• Honda Signs Huge EV Deal in Canada

• Republic First Bank Fails, FDIC Steps in

• Lack of Skilled Tradespeople is Driving Up Prices

• Appalling E-Transfer Abuse

• Canada Life Faces Sanctions

• Market Movers | Winners & Losers

THIS WEEK’S POLL QUESTION
(Results in Next Week’s Newsletter)

LAST WEEK’S POLL RESULTS

S&P 500 Weekly Overview

S&P TSX Weekly Overview

THANK YOU!

A big thanks to those of you who took the time to leave your comments on this next section of the newsletter, the Most Overbought & Most Oversold stocks at the end of the week.
Overwhelmingly (72% to be exact), you told me that you do read and use this information as part of your larger investing planning.

Most Overbought

The Relative Strength Indicator (RSI) can provide a signal that suggest a stock is either overbought or oversold. A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell. Always perform your own due diligence.

Most Oversold

A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

TRANSPORTION & INDUSTRIALS
Honda Inks Huge EV Deal

Honda has announced a $15-billion investment to ramp up its EV and battery production in Ontario, making this the largest investment ever in Canada's auto sector. This move not only solidifies Ontario’s spot in Honda’s North American EV strategy but also brings a massive economic boost to the province.

The plan includes expanding Honda’s existing Alliston facility to include a new vehicle assembly plant and an EV battery factory, which is scheduled to open its doors in 2028. This expansion will allow for an annual production capacity of 240,000 vehicles.

And it's not just about production; perhaps more importantly, this deal secures the future of 4,200 existing jobs and creates 1,000 new ones, ensuring job security and new employment opportunities in the community.

The investment, which is supported by up to $5 billion in subsidies, has drawn support from both Prime Minister Justin Trudeau and Ontario Premier Doug Ford.

Similarly, Trudeau emphasized the strategic importance of such investments.

A few other notes surrounding this deal:

Criticism and Concerns: Despite the positive outlook, there are concerns about the significant taxpayer funds benefiting a major global automaker and the actual impact on job creation for Canadians. That criticism is probably unavoidable.

Natural Resources and Skilled Labor: Honda chose Canada for its rich mineral reserves essential for battery production and its skilled workforce. (This is ironic, as you’ll see in a story a bit later in this publication.)

Lower Subsidies, Greater Value: Honda is accepting significantly lower subsidies (around $5 billion) compared to its competitors, focusing more on the strategic benefits of its location rather than short-term financial incentives. This signifies a long-term commitment to Canada’s automotive future.

Potential Ripple Effects: With any luck, this deal could set a precedent, encouraging other major automakers like Toyota to make similar commitments in Ontario, further enhancing Canada's position in the EV industry.

This strategic move by Honda not only shifts its own trajectory towards electric mobility but also signals a strong vote of confidence in Canada's role in the global EV market, setting a new standard for automotive investments.

THANK YOU TO OUR SPONSOR
Harvest Launches New Industrial Fund

Harvest is pleased to announce the launch of the Harvest Industrial Leaders Income ETF – HIND on the TSX.

For the most part, Industrials are companies that manufacture machinery, handheld tools, and industrial products. This sector also includes aerospace and defense firms as well as companies engaged in transportation and logistic services.

⚖️ Impact of Recent Legislation

In 2023, the US manufacturing industry was able to capitalize on the momentum generated by three significant pieces of legislation that were signed into law in 2021 and 2022.

🏗️ Infrastructure and Manufacturing Legislation Impact

These laws have sought to prioritize rebuilding US infrastructure, advancing clean energy initiatives, and building out the domestic semiconductor industry. This new legislation has also aimed to foster job growth, as well as workforce development and workplace equity.

💼 Sector Impact and Investment Opportunities

The infusion of funds and tax incentives into US manufacturing has had impact across various sectors. These include semiconductors, clean energy components, electric vehicles, batteries, and the constituent parts and raw materials of these products.

📈 Harvest Industrial Leaders Income ETF (HIND)

Objective: HIND seeks to tap into the manufacturing industry as it is poised to benefit from the passing of these acts. Indeed, this legislation has already spurred record private sector investment in the manufacturing space.

Strategy: HIND will seek to provide Unitholders with the opportunity for capital appreciation and monthly cash distributions. To achieve the distributions and help lower volatility, HIND will employ a covered call writing strategy on up to 33% of the portfolio securities.

Investment Focus: The Harvest Industrial Leaders Income ETF seeks to provide investors exposure to industrial leaders that drive innovation, with steady monthly income.

The Harvest Industrial Leaders Income ETF – HIND on the TSX.

Visit www.harvestetfs.com to see how they can assist you in achieving your financial goals.

Quick reminder: Commissions and management fees and other expenses may be associated with investing in Harvest ETFs. Their values change over time and past performances may not be repeated. Please read the relevant prospectus before investing.

BANKING
Republic First Bank Fails

Just over a year ago the U.S. financial sector was in turmoil as we saw a true regional banking crisis, and now the space is back in the news.

The Federal Deposit Insurance Corporation (FDIC) announced the closure of Philadelphia-based Republic First Bank this week, marking the first U.S. bank failure of the year. The Pennsylvania Department of Banking and Securities ordered the bank closed and entrusted the FDIC with the role of receiver. The FDIC quickly coordinated with Fulton Bank, which will now assume nearly all the deposits and assets of Republic Bank.

Republic Bank had around $6 billion in total assets and $4 billion in total deposits as of the end of January. Compared to last year's bigger bank failures like Silicon Valley Bank, Republic is relatively smaller but its closure still resonates within the financial community.

In a move that is sure to provide reassurance for customers, Republic Bank’s branches across New Jersey, Pennsylvania, and New York will reopen under the Fulton Bank banner this weekend or Monday, depending on their usual operating hours. That sure didn’t take long.

Also, all existing deposits up to $250,000 are secured under the FDIC’s insurance coverage.

TRADES & EMPLOYMENT
Skilled Tradespeople a Dying Breed

If you’re wondering why the cost of living seems to still be going up and up, a big factor here in Canada is the acute shortage of skilled tradespeople affecting many industries, from construction to hospitality. This shortage isn't just a minor inconvenience; it's a major financial burden for all Canadians.

Basic economics says that when there is a shortage of supply, prices will go up.

Rennehan also explains that this isn't limited to just homeowners, as businesses across various sectors feel the pinch, ultimately passing these costs onto consumers.

Simon Gaudreault of the Canadian Federation of Independent Business points out the broad impact of this issue, affecting everything from bus fare to restaurant menus.

In 2022 alone, small Canadian firms lost $38 billion in business opportunities due to labor shortages, with construction taking the hardest hit.

Also, the current workforce is aging, with about 700,000 tradespeople expected to retire by the end of the decade, just compounding the problem

As we have moved into the new, post-pandemic world, we’re starting to feel the impact of the massive changes in our labour markets. This is a crisis that has urgent need for more skilled tradespeople and, to take it to the next level, perhaps a reevaluation of how we value and incentivize these essential careers.

LEGAL & TECHNOLOGY
E-Transfer Abuse is Appalling

I get it that I’m a baby boomer and I might not be 100% up to speed on the latest technology, but I was honestly floored when I read the story this week about survivors of what’s being call intimate partner violence (IPV) in Canada.

Now, this group is speaking out against the misuse of e-transfer services to send abusive messages.

Emma Parsons, an Ottawa nursing student, found herself receiving small amounts of money from her ex-boyfriend, each transfer laced with nasty comments—a new method for him to reach her despite being blocked on all other platforms. Feeling shocked and embarassed, she was too uncomfortable to even report the incidents to her bank or the police.

Then, there’s the horrifying story of an incident where a woman in Ontario received threatening e-transfers before her tragic murder. This prompted Emma and her mother to voice their concerns.

Echoing the calls for change is Catherine Fitzpatrick, a former banking executive from Australia, where significant steps have been taken to curb such abuse. Australian banks have implemented AI that detects and blocks abusive messages and have introduced financial abuse clauses in their terms of service.

Fitzpatrick stressed the importance of banks taking proactive steps to ensure user safety, noting that Australian measures have successfully blocked over a million abusive messages since 2020.

The Canadian Bankers Association claims that policies are in place, but many, including IPV survivors, feel these are insufficient.

Like I said, I was stunned to hear that this type of behaviour is happening, and it’s clear that this is an urgent matter. We need the banking industry to step up and stay ahead of these bad actors. Apparently, it’s not just about preventing financial abuse, but saving lives.

INSURANCE
Canada Life Sanctions

Public servants, retirees, and their families have been voicing their frustrations over significant delays and mishandled medical claims, and they’ve been pushing the federal government to finally impose financial sanctions on Canada Life, the current handler of these health plans.

As background, Canada Life took over the reins from Sun Life on July 1, 2023, but the transition hasn't been smooth. Complaints have been flooding in about delayed claims and unexplained rejections.

Michèle LaRose from Public Services and Procurement Canada says that, "Canada Life is being penalized under contract terms due to the startup delays" although specific details on the sanctions remain under wraps.

The move to impose sanctions has been welcomed.

However, Isfeld pointed out the ongoing issues especially abroad, describing it as "still needs to be fixed."

On the flip side, Canada Life asserts that the initial hiccups have been sorted out claiming, "Canada Life is delivering benefits under this plan in Canada within expected service levels, including answering calls within 30 seconds and processing electronic claims within 1 day on average," as a spokesperson highlighted.

Both PAFSO and PSAC are considering legal actions to ensure that the government steps up its game in providing a functioning health plan.

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