To my clients:
Important follow-up: Brenda and I had intended to send annual review invites this week, but have been delayed as we strategize how best to accommodate virtual vs. in-person requests (we will be accommodating both), while also allowing windows in my schedule for portfolio and investment management. Expect invites early next week.
It was an up week for North American stock markets with the Canadian TSX finishing up 2.8%; the U.S. Dow Jones Index up 2.0%; and the U.S. S&P 500 up2.7% .
Very brief update this week with a simple message: U.S. inflation has been conquered and the U.S. Fed is compounding a policy mistake if it does not soon acknowledge this obvious truth. Let me briefly (as promised) explain…
Headline month-over-month inflation for December came in at – 0.1% (yes, NEGATIVE!). The annualized inflation rate the past 6 months now hovers around 1.5% (yes, BELOW the Fed’s 2.0% target). The Fed has DONE ITS JOB! In fact, owing to the lagged effects of increased interest rates, I’m convinced it has already gone too far with rate increases. As JP Morgan said in its earnings release this morning, its base case now calls for a mild recession in the second half of 2023. As I’ve written for some time, I agree. (Incidentally, JP Morgan is a client portfolio holding and its results were above expectations).
The good news is that I believe the markets have already priced in a mild recession. Further, If the Fed soon acknowledges the plainly obvious and backs off its rate hike path, I believe the economy is well poised to weather a mild recession. In turn, it is also my belief that markets will look right through a mild recession and begin pricing in the inevitable recovery on the other side. This is why the markets have had a good start to 2023 these past two weeks… anticipation that the Fed will be forced to acknowledge the obvious. It’s easy to cry wolf when there is a wolf in the room. But the wolf has left the room.
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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