To my clients:
I will be taking the week of July 3rd to July 7th off. I’ll be connected while away and will monitor markets. I’ll be sporadically able to reply to client queries although my response time is likely to be delayed. For urgent needs, as always, please contact Benda at 778-328-7797 or brenda.goertzen@rbc.com. There will be no weekly update on July 7th.
It was a down week for North American stock markets with the Canadian TSX finishing down 2.8%; the U.S. Dow Jones index down 1,7%; and the U.S. S&P 500 down 1.4%.
Shortish update this week in point form:
- Weekly jobless claims are again back on the radar. This leading indicator of recession blipped up 7 weeks ago and caught my attention. Then it immediately dropped back down to more recently representative levels for the subsequent 3 weeks. But, for the most recent 3 weeks the claims number has again turned materially back up.
- Commensurately, average hours worked by employees is also coming down in BOTH Canada and the U.S. This trend undermines the wider narrative that employment remains strong. Typically, owing to the difficulty of hiring and training new employees, most companies prefer to hang on to their existing employees as long as possible, and prefer to reduce work hours before letting employees go. Outright job losses come later.
- While neither of the trends identified in the preceding two points are at alarming levels, in conjunction they are flashing a warning sign. I’m paying attention to that warning. As I have felt for quite some time, I think recession looms. The good news is that I think it will be a mild recession.
- The other good news, which I have previously stated, is that I think markets priced in a mild recession at the market lows of late 2022. Its simply that any forthcoming recession is taking longer to materialize than many would have thought.
- And still more good news would be that if recession occurs, the U.S. Fed would be forced into rate cutting mode, irrespective of whether it raises rates at its next meeting in July or not.
- Overall, if recession indicators continue to strengthen, markets are sure to be choppy. However, given the likely change in course by the U.S. Fed to such developments, I suspect market still have modest upside into year end.
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
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