How good have the markets been? Pretty good indeed.

 

As we approach the end of 2021, news headlines are focused on how the economy will operate within an inflationary environment. For consumers, we see it everywhere - from food to energy costs. For businesses, they are needing to address inflationary pressures - from wages to raw materials.

During periods of inflation, interest rates tend to move higher, and we expect central banks in developed countries to increase interest rates in 2022 to keep inflation in check on the back of economic growth. That said, we expect that governments will not want to derail the current economic expansion and will wait until the labour market is operating near capacity. We also anticipate that supply-chain challenges will improve in the last half of 2022, which will mitigate some of the current inflationary pressures. 

Notable risks to the economy and markets continue to be geopolitical tensions and potential effects of new Coronavirus variants. Concerns surrounding the strained relationship with China have waned during the last half of this year, but issues relating to Russia persist, while the challenges of newly emerging virus strains and variants remain a real risk to potentially slowing the current economic recovery and expansion.

Since the pandemic began, equity markets have rebounded strongly from the initial declines in March of 2020.  Even though we saw some volatility return to global markets earlier this fall, the major stock indices look to finish the year on a positive note, with growth in each quarter of 2021. You may be questioning, we've come a long way; where do the markets go from here?

To address that question, it’s always helpful to look at the underlying economic factors driving the markets. While the pace of growth has slowed, it is important to note that there is still growth in global economies and there are many catalysts that lead us to believe that this economic expansion will continue, and be reflected accordingly in global markets.  For example, households are flush with cash and looking to consume the many things that they haven't been able to access in recent years; corporate earnings and profits remain healthy; wages are rising and companies are hiring. Outside of restaurants and hospitality, most sectors of the economy are now nearly back to, or have surpassed pre-COVID employment levels.

Behind the scenes, our Team continues to monitor your portfolio. We have taken profits on select names that we felt have become overvalued and we have added companies which will benefit from the rising interest rate environment we anticipate seeing in the year ahead. After your strong returns in equities this year, we feel it appropriate to rebalance portfolios back to target weights. Further, we have recently shifted the geographic exposure in your portfolio to include good quality companies outside North America. By increasing our exposure to international markets, we are positioning your portfolio to take advantage of what we view as more attractive valuations.