To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 2.0%; the U.S. Dow Jones Index up 1.8%; and the U.S. S&P 500 up 1.5%.

Another short update this holiday shortened (in the U.S. at least) week…

Markets continue to react positively to the expectation of a downshift in the rate hike campaign by the U.S. Federal Reserve. Before the last sets of inflation data the past two weeks, expectations were that the Fed would put through yet another 0.75% rate hike. However, the notable slowdown in inflation seen in the aforementioned Consumer and Producer price reports has seen expectations fall to “just” a 0.5% rate increase. Interestingly, there will be one more inflation report released before the Fed next meets and if it reveals a continued deceleration in inflation (as I would expect) it’s possible market expectations might further downshift to a smaller 0.25% rate increase and/or perhaps a ”pause” in further rate hikes at subsequent meetings. Were this to happen I’d expect further market recovery into year end.

Of course, with rising rates and slowing inflation, the concern squarely shifts to recession risk. While recession is not a certainty, it seems (in my and RBC’s opinion) more likely than not at this stage. The depth of any recession will be key to market expectations for 2023. Since there continues to be differences of opinion as to the likelihood of recession (i.e. contrasting with RBC, the Goldman Sachs economics team think recession will be avoided), it would seem reasonable at this stage to conclude that any recession, were it to occur, will be shallow and short lived. As long as this remains the base case, I’ll continue to maintain the equity bias in client portfolios. But without doubt, the economic path ahead must be watched very closely.

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

Visit Our Website: www.nickscholte.ca

We accept new clients primarily by referral from our existing clients. If you have family or friends who would be a good fit for our specialized wealth management services, please let us know.

Any recommendations herein are for the exclusive use of clients of RBC Dominion Securities and Investment Advisor Nick Scholte. Any other direct or indirect recipient of this email should consult with his/her own licensed investment advisor prior to implementing any investment action he/she may be contemplating.