To my clients:
I was an up week for North American stock markets with the Canadian TSX finishing up 2.7%; the U.S. Dow Jones Index up 6.2%; and the U.S. S&P 500 up 6.6%.
As highlighted by both the title of this week’s update as well as the magnitude of weekly returns, it was clearly a good week for the markets. After a very poor start to 2022, such gains are indeed welcome. In fact, the weekly gain was enough to bring the monthly return for May almost back to the flat line.
The preceding said, it remains to be seen what sort of follow-through there may be in the weeks ahead. Clients will well know that my and RBC’s perspective has been consistent – we don’t see an imminent threat of recession. Further, client’s will also know that when we don’t perceive an imminent threat of recession, we advocate giving equities (i.e. stocks) the benefit of the doubt. Recessions lead to long and deep bear markets in equities. Conditions less than recession typically lead only to shorter-lived corrections that are difficult, probably impossible, to time consistently. Given ongoing strength in the broad economy, we still characterize the year-to-date environment as a particularly uncomfortable correction.
The only economic development I wish to reference this week is this morning’s release of the Core PCE Price Index. This index is a measure of inflation, and it is one that the U.S. Federal Reserve pays particular attention to. This morning it came in as forecast at +4.9% year-over-year for the month of April, a notable slowdown in this measure of inflation from the prior March reading of +5.2%. Might this be the first concrete evidence of inflation rolling over into year-end as I, RBC and, in fact, the U.S. Fed itself have been consistently forecasting? If so, it may give cover to the Fed to perhaps not raise rates as aggressively as they have been guiding. We will gain further insight from the more widely followed May Consumer Price Index when it is released in two weeks’ time.
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
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