To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 1.9%; the U.S. Dow Jones Index finishing up1.2%; and the U.S. S&P 500 finishing up 0.8%.
The economy is slowing and, with it so too is inflation. Of this there is no question.
To wit, last holiday Friday, the U.S. Employment Report showed a less than expected 236,000 jobs were added in March, which is the lowest monthly gain in over 2 years. Historically, this gain is still solid by long-term (i.e. multi-decade) historical standards, but directionally it marks a notable slowdown from the prior two months’ readings which averaged over 400,000 new jobs.
Likewise, there has been a notable spike up in weekly jobless claims which is a favored recession indicator here at RBC. Weekly claims the past three weeks have averaged their highest level since mid-2022.
And this morning retail sales were reported to have declined 1.0% in March vs the prior month’s reading.
the Consumer Price Index (i.e. the most widely watch measure of inflation) decreased to a 5.0% year-over-year reading, with just a 0.1% month-over-month reading. Meanwhile, the Producer Price Index (a measure of wholesale prices) outright DECLINED by 0.5% month-over month and now sit at just 2.7% year-over-year (i.e. approaching the Fed’s long-term target of 2.0%). Keep in mind that producer prices are often seen as a lead indicator for subsequent consumer prices.
Owing to the lag high interest rates have in filtering through the economy, its difficult for me to envision how recession will be avoided. But I’d continue to expect the recession to be mild. I also think recession was priced-in by last year’s poor market performance. Further, with recession inevitably come interest rate cuts. The market is beginning to anticipate such cuts in the second half of 2023, and that’s why the market had an up week – albeit with volatility.
And volatility will assuredly continue through the year, but I continue to believe the markets will work their way higher from here.
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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