To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 3.5%; the U.S. Dow Jones Index up 2.6%; and the U.S. S&P 500 up 4.0%.

Volatility – the degree to which markets go up and down - continues. Thankfully, this week’s volatility was of the good, “up”, kind (offsetting last week’s bad, “down”, kind). I reiterate what I have been hammering home for several weeks now – that market volatility is likely to remain elevated as the U.S. Federal Reserve looks to change tack and begin cutting rates, almost certainly beginning at next week’s meeting. As I have previously noted, I’ll focus less on inflation as we move forward and more on broader economic data. Said data has clearly slowed the past several months, but remains collectively positive and indicative of continued economic expansion.

I also reiterate that if economic cooling accelerates and threatens recession, that the Fed has a huge amount of room to cut rates quickly and aggressively and restimulate expansion. This is a luxury the Fed has not had for most of the past two decades. Based upon the collective data at hand, I continue to think that the Fed will successfully engineer an economic “soft landing” but acknowledge that a recession is possible. However, should recession occur, it is almost certain to be mild and short-lived. Trying to time the onset and subsequent recovery of a possible mild and short-lived recession is unlikely to be productive for long-term client returns, so I don’t anticipate repositioning client portfolios for this possibility.

So, we await the Fed rate decision next Wednesday. Whether the cut is 0.25% (likely), or 0.50% (less likely, but possible), more important than the cut itself will be the accompanying rationale Fed Chair Jerome Powell articulates in support of the move. The market will be looking for messaging that posits highly restrictive rates are simply no-longer needed and moderating these high rates back toward neutrality is the objective. Should such messaging occur, markets will likely react positively. However, if the Fed openly frets about decelerating economic data, then this likely would be received less well by the markets. I’ll be watching with interest.

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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