March has come out of the gate with positive returns across most sectors/regions. As of the March 6th close, the S&P/TSX (Canadian Index) is up +5.83% year-to-date and the S&P500 (broader US market) is ahead by +5.44% for the same period.
February ended with what I’d characterize as “flat” from a performance standpoint and was accompanied by an uptick in volatility during the 3rd week. If you take a look below, I’ve included the 1-year chart for the VIX (CBOE Volatility Index). This is one of the indicators I pay close attention to when managing and rebalancing portfolios. The lower the number, the more positive the markets are (generally). I’m happy to report that we are now back at the lower-end of the matrix (and well below the 200-day moving average – red line), with that trend intact.
*source: FactSet
While we can’t predict the outcome of Wednesday’s Bank of Canada meeting with 100% certainty, it’s widely expected they’ll hold interest rates at the current level. Recent economic data on this side of the border has indicated that inflation has begun to decelerate meaningfully. The latest 4Q22 GDP reading reiterates softening in consumer demand and business fixed investments, which I think we can correlate as a direct result of aggressive rate hikes during 2022 and again in early February.
These trends mentioned above (among others), suggest the Bank of Canada’s monetary policy tightening is having the desired effect on the economy, given the interest rate sensitivity of Canadian households. Nonetheless, strategists continue to see the likely need for additional rate hikes in upcoming meetings, as labour market and inflation data continue to be closely monitored.
In the U.S., investors await Federal Reserve Chair Powell’s speech for further clarity on their path for interest rates. As of now, markets are pricing-in a higher terminal rate around 5.25-5.50 %, including an anticipated 25 basis point rate hike in the coming FOMC meeting on March 21-22. This is in line with the amount of tightening Fed officials have suggested is necessary.
In both my January & February commentary, I advised clients to exercise patience and temper return expectations until probably the end of the 2nd quarter. It is my estimation that by the time June is over, we’ll have a much better sense of more concrete trends, where inflation is concerned. In the meantime, I continue to look for rebalancing and value-based opportunities. I still maintain, it doesn’t hurt as much to sit on cash when the yield is over 4%, in the RBC Investments Savings (money market).
Please reach out with any questions/comments you might have and remember – Spring is just days away!
Libby
The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc.* nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. *Member CIPF. ®Registered trademark of Royal Bank of Canada. Used under licence. ©Copyright 2004. All rights reserved.
* All rates, yields and prices are subject to change