To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing down 1.7%; the U.S. Dow Jones Index down 0.5%; and the U.S. S&P 500 up 1.6%.
While there is lots to discuss this week, I’m going to go point form to avoid an overly lengthy update:
- The U.S. Federal Reserve, as expected, kept rates steady at its policy meeting this past Wednesday
- U.S. inflation as measured by the Consumer Price Index came in BELOW expectations across all relevant metrics
- U.S. inflation as measured by the Producer (i.e. manufacturers) Price Index (often considered a leading indicator of consumer prices) came in BELOW expectations and, further, actually DEFLATED
- Two secondary measures of inflation which I don’t believe I’ve ever before mentioned, the Import Price Index and the Export Price Index which, like the Producer Price Index, might be considered leading indicators of end consumer inflation also both came in BELOW expectations and also both DEFLATED
- Weekly jobless claims ticked up very notably to 242,000. Though perhaps not quite a “spike”, the three week trend in this metric is clearly revealing growing weakness in the labor market. I’d be very surprised if the next U.S. Employment Report in July doesn’t confirm this growing weakness.
- It seems that the long anticipated economic softening may finally have arrived in the U.S.. Despite the Fed not lowering rates this week, and the median voting member only anticipating one cut before year end, I’d be surprised if this week’s data doesn’t begin shifting the narrative back to sooner than later rate cuts (market implied odds now anticipate the first cut will come in September).
- The GOOD news is that with overnight rates sitting at 5.5% in the U.S., the Fed has lots of room to cut rates as needed to preserve an economic “soft landing” (soft landing = no recession).
- It’s because a) the U.S. has considerable scope to cut rates; and b) that despite the softening, economic activity in the U.S. is still considerably better than in Canada, that client portfolio positioning remains tilted toward the U.S. It’s also why U.S. markets outperformed Canadian markets this week (see the weekly results of the U.S. S&P 500 vs the Canadian TSX in my traditional opening lines at the top of this week’s update).
- Incidentally, as expected (I wrote about this over the past two weeks), discretionary client holding Apple articulated its artificial intelligence strategy at it developers conference this week. As hoped, Apple’s strategy has been well received by the markets and resulted in very strong performance leading to new highs for the stock.
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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