To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing down 1.0%; the U.S. Dow Jones Index finishing down 1.4%; and the U.S. S&P 500 up 0.3%.
Well, I’m back from my short family vacation (Tofino), and the economic narrative is largely unchanged, although the Covid narrative appears to be worsening – particularly today.
On the economy, it remains extremely strong. The most recent data point confirming this were retail sales coming in an exceptionally strong +1.7% month-over-month (vs. expectations of 1.2%) and 16.3% vs. this time last year. Obviously though, the year-over year number is in comparison to last year’s covid ravaged economy and, in that context, the staggering year-over-year number is hardly surprising. Which…
… brings me to inflation, and consumer prices rising by 6.2% year-over-year – a level not seen for 31 years. Just as retail sales were in comparison to weakness last year, so too is inflation. I and RBC continue to be in the camp that aligns with official U.S. Federal Reserve expectations that inflation will moderate as supply chains normalize. But, the longer inflation remains at these elevated levels, the more of a concern it will become. For me, it’s not a significant concern yet, but it could well become one. The situation will be monitored.
Unfortunately, the path of covid continues to confound. Cases are again rising, and just this morning Austria announced a return to full national lockdown while Germany put in place lesser, but still restrictive, measures. Case counts in the U.S. have clearly turned up also. The widely suspected culprit to this renewed surge in covid cases is the waning efficacy of vaccines. It appears that the number of “breakthrough” cases (i.e. covid cases in those who are vaccinated) as a share of total new cases is rising. This is a worrying trend as we head into the holiday season and are again confined mostly inside. The good news is that booster shot campaigns are already being rolled out (I’m registered for mine and should receive in the next 1 to 2 months), and are said to restore the full level of immunity enjoyed within two weeks of receiving one’s second shot. More importantly, despite the Austrian example, I suspect it would be highly remote that either the U.S. or Canada would return to full lockdown mode. Further, with the experience already gained functioning in a pandemic afflicted world, the impact from a full-fledged new wave of covid should not be a game changer as it has been in the past. As I’ve said repeatedly, the real game changer with respect to covid would be the emergence of a vaccine immune variant. Absent that, I no longer view covid as a serious economic or market threat, although as a humanitarian threat and the associated frustration of adhering to associated protocols, I really am looking forward to an end to this nearly two-year saga.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Vice-President & Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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