To my clients:

First, an announcement. I will be leaving next Thursday evening for a 9-day Spring Break vacation with my family. I’ll be connected while away and, as always, monitoring developments from afar. That said, there will be no updates the next two weeks. The next weekly update will be March 24th.

It was an up week for North American stock markets with the Canadian TS finishing up 1.8%; the U.S. Dow Jones Index finishing up 1.8%; and the U.S. S&P 500 finishing up 1.9%.

In many recent conversations with clients (typically during annual reviews), I’ve discussed the outlook for the year ahead. I want to reiterate here in the lead paragraph of this week’s update what I’ve been communicating in conversation: that although I maintain a positive outlook for the year ahead and suspect markets will end higher than at present, the path is sure to be bumpy. Simply put, the three biggest forces that can engender disproportionate volatility in markets are all in play – inflation, interest rates and the prospect of recession. My one sentence summary for each of the forces are as follows:

Inflation – based upon month-over-month metrics since June of last year, I believe inflation is already conquered although this will not be revealed in the headline year-over-year measure until roughly mid-year.

Interest rates – have risen a lot, but are likely to rise more as the U.S. Federal Reserve errs on the side of caution in its inflation fight.

Recession – a mild mid-year recession is likely in store as the Fed continues to push rates higher.

And, as I’ve also mentioned in my client conversations, there is a fourth force lurking not so benignly in the wings – the Russia/Ukraine war. Hopefully this conflict doesn’t worsen, and possibly even improves. I’ll make no predictions.

So, with such powerful forces in play, I reiterate that the path ahead is sure to be bumpy as any one of these forces on its own can lead to disproportionate volatility, let alone all three (or four). That said, the interplay amongst these forces combined with the poor market returns of 2022 do, in my opinion, portend overall recovery from here through year end. Just don’t expect the recovery to be in a straight line.

Next week we get an important employment report out of the U.S. as well as inflation data the week after. Both reports will be monitored closely for clues as to the path of future Federal Reserve interest rate policy. This week saw the release of the ISM Manufacturing and Services data. Manufacturing (at 47.7) remains contractionary (i.e. recessionary), while Services (at 55.1) remain well into expansionary territory. The dividing line between contraction and expansion in these measure is at 50.0. For context, readings of 60.0 or above are rare and represent very strong expansion while readings of 40.0 or below are equally rare and represent very strong contraction.

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

It’s an honor to receive referrals. If you have family or friends who would benefit from our services, please let us know.