To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 3.4%; the U.S. Dow Jones Index up 4.2%; and the U.S. S&P 500 up 5.9%.
The big news driving this week’s substantial upside in markets was yesterday’s inflation report via the Consumer Price Index (CPI). At 7.7%, year-over-year inflation came in markedly below expectations for an 8.0% reading and the prior month’s measure of 8.2%. As I said to a client yesterday, it’s my belief that the U.S. Federal Reserve is pushing interest rates far too high in its inflation fight because the full effects of rate hikes already enacted have yet to be felt in the broad economy (owing to the 6 to 18 month lag). This weaker than expected inflation report fueled speculation that the Fed too might begin shifting its policy stance. The next Fed policy announcement is not until December 14th and, IMPORTANTLY, there is another CPI inflation report to be released the day prior on December 13th. IF this report shows follow-through in slowing Inflation (as I suspect it will), then the rally in stock prices has a very good chance to continue through year-end. Probably not enough to turn 2022 into a positive year for portfolio returns but, well, hopefully enough to improve spirits.
I’ll add that the early morning “reversal” in markets on October 13th that I’ve written about several times the past many weeks continues to hold. I still don’t want to be definitive by claiming that this date marked the end of the 2022 bear market, but as each week goes by and markets continue to trend in the right direction, the possibility grows stronger.
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
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