On the Road Again

April 01, 2022 | Matt Barasch


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It turns out that Canadians cannot wait to get on the road again. This week we cover a surge in travel spending and a look at Q1 stocks and bonds.

Chart of the Week (COW)
With Covid case numbers dropping and restrictions easing, Canadians have begun to once again embrace travelling. Further, because pent-up demand is high from not travelling for the better part of two-years, we have now seen travel exceed the levels of 2019 for the first time since Covid first hit the economy.

As you can see from the chart above, March break saw an increase in travel spending over 2019 levels of close to 25%, which is the first time the chart has moved over the zero line since Covid began.

Market Update – A Tough First Quarter for Bonds and U.S. Stocks

The first quarter of 2022 is in the books and it was a tough go for the bond market and the U.S. stock market (as well as global stocks). Bonds, which often provide a safe haven when times are tough for the stock market, provided no quarter - suffering their worst 3-month period in 20-years with the Canadian bond universe losing ~8%.

U.S. stocks enjoyed a strong March; however, the S&P 500 still lost nearly 6% in Canadian dollars for the quarter, while the “spicy meatball” heavy NASDAQ index lost nearly 10% in Canadian dollar terms. To the positive, the energy heavy Canadian market actually gained ~3% for the quarter with crude prices sharply higher on the back of Russia’s invasion of Ukraine.

How does this impact our views on the rest of 2022? We entered the year with a cautious outlook relative to our views heading into 2021. We thought that point-to-point, the year would be decent, but that there would be a fair bit more volatility than 2021. The main driver of this was the pitched battle between an improving economy and tightening monetary policy. We felt that the economy would be strong enough to withstand several rate hikes, but that if inflationary pressures forced more rate hikes than forecast, a stumble was possible.

Ukraine has thrown a bit of a wrench into this forecast as it has greatly amplified inflationary pressures (in addition to a number of other things). RBC Economics has upped its forecast on the number of rate hikes from the Bank of Canada and U.S. Fed from roughly four to more like six to eight. This has caused parts of the yield curve to invert (where long-term rates are lower than short-term rates), which is often a signal of rising recessionary risks.

Thus, we are more cautious than where we began 2022; although, most recessionary gauges are not flashing yellow (let alone red), so we still think the year ends slightly to the positive with Canada outperforming the U.S. mainly because of its heavier commodity exposure and overall lack of “spicy meatballs”. We would also add that the underlying economic data has remained strong with the U.S. adding nearly 500k jobs this morning and the unemployment rate declining to 3.6%, which is approaching pre-Covid levels.