To my clients:
Reminder: I’ll be away from the office next week. I’ll be connected and monitoring markets and available to reply to emails, although my response time surely won’t be immediate. But, as always, if there are urgent requests, please reach out to Brenda at brenda.goertzen@rbc.com or 778-328-7797. There will be no weekly update next Friday.
It was an up week for North American stock markets with the Canadian TSX finishing up 3.8%; the U.S. Dow Jones Index finishing up 2.0%; and the U.S. S&P 500 finishing up 2.4%.
In a week that saw Jerome Powell (at a meeting of global central bankers in Portugal) reiterate the expectation that the Fed may yet raise interest rates a further 0.50% through year end, we saw more evidence that inflation is quickly moderating in a data release earlier this morning: the PCE (Personal Consumption Expenditures) Index fell to 3.8% year-over-year from 4.3% the previous month. While the Consumer Price Index is a more widely followed inflation indicator, its important to keep in mind that the PCE indicator is the Fed’s preferred measure. There is an odd tension between the rate hike path guided by the Fed and the boots on the ground reality of continued, and quickening, declines in inflation. While I continue to think the Fed is attempting to “jawbone” ongoing tightening in financial conditions and that it is unlikely to follow through on its rate guidance, I may well be wrong. Certainly the Fed has already gone further than I would have expected given the well-known lags in interest rate policy.
But what is undeniable is that, to date, the economy has been far more resilient than I, or frankly nearly anyone would have expected [and I really do mean nearly anyone – I read an inordinate amount of economic research from a wide variety of sources, not just RBC, and also watch CNBC on a daily basis (which I’d NOT recommend to any client!), and I really can’t think of anyone who projected this kind of economic resilience]. Owing to the aforementioned lags in how rising rates impact the economy, I would be reluctant to say we are in the clear with respect to a “no-recession” outlook, but the possibility is certainly far more real than I would have expected even as recently as 1 month ago. To wit, the second reading of 1st Quarter U.S. GDP was revised higher than the initial estimate of 1.5% annualized REAL growth to 2.0%. It’s important to emphasize that this REAL growth is above and beyond the impacts of inflation. Given historical precedent, its really quite a remarkable achievement in the face of such a rapid change in the interest rate environment.
Interestingly, even weekly jobless claims declined notably this week. This one particular indicator remains the possible “canary in the mineshaft” but, while it has generally been trending up the past few months, it has been doing so with the spurting inconsistency of a summer garden hose. It remains difficult to interpret what this particular metric might be portending.
In any event, the 2023 economic resilience and market strength has certainly been welcome coming as it does on the heels of the ever so challenging 2022.
That’s it for this week. Next update on July 14th. 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.