To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing up 1.4%; the U.S. Dow Jones Index down 1.3%; and the U.S. S&P 500 down 1.3%.
Before adding more color (via an excellent article in this month’s edition of the Global Insight Monthly produced by RBC Wealth Management) on the current market volatility, I’ll quickly comment upon the overall strength of the “Big 3” economic indicators I regularly highlight. First, at 58.6, the ISM Manufacturing Index came in higher than both expectations and the prior month’s reading. Next, at 56.5, the ISM Services Index came in below expectations and the prior month’s reading. Lastly, the most important metric of them all, the monthly Employment Report, at an exceptionally strong 654,000 new jobs created smashed both expectations and the prior month’s reading. So, again, overall these three metrics collectively exhibited solid strength. Admittedly the Services sector markedly missed expectations, but the reading itself is still reasonably solid.
So this strength comes in the face of inflation fears and a disturbing war in the Ukraine. No question, it is unsettling. But as I have been repeatedly asserting, and as the cited economic metrics demonstrate, recession is not imminent. Absent recession, RBC’s long-standing mantra (which I strongly support) has been “give equities he benefit of the doubt”. In support of this perspective, I am linking the article I referenced above titled “The Market, Earnings, and the Economy From 10,000 feet”. It’s 5 pages long. While I’d encourage client’s to read the entire piece, even if one were to limit their reading to just the first two pages of text, the point will still be well made – daily, weekly and even monthly volatility all but disappear within the general growth trend of markets. In support of this, the authors of the article plotted S&P 500 stock prices going back to 1945, but with a twist: only the year-end level of the index has been potted, and all other daily readings have been omitted. Presented this way, market returns appear decidedly more stable, with the main observable downturns coinciding with, you guessed it, recession. Click here for the article.
At the end of the article, RBC’s proprietary 7-indicator recessionary scorecard is presented. All 7 indicators are flashing “green” for expansionary conditions. There isn’t even a single yellow light flashing. Recession is not imminent. As such, I am maintaining my overweight position in equities for clients.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior 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
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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