To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 0.7%; the U.S. Dow Jones Index down 0.3%; and the U.S. S&P 500 down 1.9%.
Lots to cover today and, unfortunately, I’m pressed for time in what has been a busy week. As such, point form it is:
- The big news of the week was the release of the U.S. Federal Reserve minutes from its past meeting. The take away message is that the Fed, in order to combat more persistent inflation than envisioned, is much more inclined to reduce quantitative easing and increase interest rates more aggressively and rapidly than the market had been expecting. Markets - particularly interest-sensitive/high-growth tech stocks - dropped markedly on Wednesday with the release of the news.
- Interestingly, the “big three” economic indicators were released this week and although these were collectively still strong, they all missed expectations and have come off the “white hot” levels of recent months. Might inflationary pressures be on the precipice of easing just as the Fed begins taking more aggressive action? My personal perspective is that this is indeed the case.
- Specifically, the ISM Manufacturing Index came in at 58.7 vs expectations of 60.0 and the prior month’s reading of 61.1
- The ISM Non-Manufacturing Index (aka “Services”) came in at 62.0 vs expectations of 66.9 and the prior month’s all-time high reading of 69.1
- And the monthly job report showed 199,000 new jobs created vs. expectations for 400,000 and the prior month’s reading of 249,000
- To reiterate, collectively these indicators remain strong, although all substantially missed expectations.
- Bottom line, the economy remains strong and recession is nowhere in sight. As such, the market outlook for 2022 remains healthy and equities (i.e. stocks) should continue to be given the benefit of the doubt in spite of the Fed inspired weakness seen this week.
- Omicron is very contagious and vaccines appear to have limited ability to prevent infection. However, the good news is that most cases are mild (especially so in those vaccinated, although unvaccinated infections are proving to be materially milder than previous strains also). Modeling suggest North America will rapidly achieve a peak in new cases over the next handful of weeks. The breadth of infection, and importantly, the antibodies and immunity such infections appear to convey, might actually facilitate the herd immunity we all would like to see. I’m sure we are all desperate for some form of a “return to normal” sooner than later.
That’s it for this week. All the best and Happy New Year!
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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