Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday December 17, 2021.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	20,739	-0.7%	19.0%
S&P 500	4,621	-1.9%	23.0%
NASDAQ	15,170	-2.9%	17.7%
Euro Stoxx 50	4,161	-0.9%	17.1%
Hang Seng	23,193	-3.3%	-14.8%

Source: Bloomberg, RBC Wealth Management

• TSX ended unchanged Friday after fading into the close to cap off a choppy trading session. TSX posted a weekly loss with energy and tech the big drags on performance. Canadian dollar ended sharply lower against USD ($0.776 US).

• Major US equity indexes finished mostly lower in Friday trading, logging declines for the week. However, during the week U.S. stocks regained their recent highs, as caution ahead of the Federal Open Market Committee meeting gave way to risk-on behavior following the Fed’s updated guidance.

• So why did stocks rally after the meeting? We think there are a couple of reasons. First, the Fed’s dramatic pivot acknowledged the reality of changing data and shifting market expectations, thereby reducing the perceived risks of policy missteps down the line. Secondly, the spotlight on the strength of the economy and the labor market refocused investors on longstanding bullish themes, including negative real interest rates and the consensus expectation for 9% S&P 500 earnings growth in 2022. In combination, we think this triggered a “Fear Of Missing Out” on a potential year-end rally.

• Asia Pacific equity markets traded broadly lower during the week. Hong Kong led the pack lower with the Hang Seng Index falling for five consecutive days. Shares of Chinese companies listed in the U.S. were not spared. The Nasdaq Golden Dragon Index is down close to 8% for the week to trade at its lowest level since March 2020. The latest selloff was driven by news that the Biden administration is planning to hit more Chinese companies with investment and export sanctions.

 

Outlook from RBC Wealth Management

(The following is an excerpt from the 2022 Outlook):

• The two-year-old COVID-19 pandemic has left its imprints on society, yet markets have been rather resilient. For 2022, we anticipate another good year for equities as long as the U.S. and global economies can avoid recessions.

• Over the next year, we think the path of markets will largely be determined by the path of major economies:

  • The U.S. and global economies should deliver above trend growth once again in 2022, albeit at a less robust and possibly bumpier pace due to lingering COVID-19, inflation, supply chain, and labor market pressures.

  • Currently, all six of the major U.S. leading economic indicators we follow are signaling that this expansion has further to run. Recession risks are quite low. Powerful tailwinds are pushing forward the U.S. and most developed economies.

  • Inflation, which has spread to all regions, is one of the key challenges facing policymakers.

  • Central banks will aim to right-size policy support in 2022, and the process of dialing back accommodation with rate hikes and other measures will be about finding the right balance.

  • Uncertainties about inflation and the pace of rate hikes could generate market volatility at times.

You can read more in an article, “Investment outlook for your 2022 portfolio” posted on my website.

 

Economy

Canada

• Canada’s inflation rate remained unchanged in November from a month prior, holding at 4.7% y/y. As expected, headline CPI was primarily propped up by energy and food prices. Energy prices continued to rise as increasing demand drove the price of gasoline 43.6% above its November 2020 level.

• Roughly half of the annualized Core CPI growth is tied to rising costs associated with automobile or home ownership. Inflation has also broadened, with 58% of the consumer basket seeing price increases of greater than 2%. All this comes as the Bank of Canada renews its five-year Monetary Policy Framework, reaffirming a 2% inflation target heading into 2022 and incorporating key labour market components into its policy approach.

U.S.

• The Fed signaled an acceleration in the reduction of bond purchases, allowing the program to conclude in March 2022 and opening the window for the first interest rate hike soon after.

• The overall tone of the meeting was the most hawkish we’ve seen since the recession, with the committee’s median forecast implying three rate hikes in 2022 and another three in 2023. Fed Chair Jerome Powell made it clear that recent inflation increases already warranted rate hikes, and that a continuation of the labor market’s improvement towards maximum employment is all that’s needed to trigger the next rate hike cycle.

Further Afield 

• The Bank of England (BoE) has determined that there is no “value in waiting”, with the Monetary Policy Committee (MPC) deciding to raise interest rates by 0.15%. The move caught the market by surprise given the recent omicron variant concerns cited by MPC members.

• The European Central Bank (ECB) said its Pandemic Emergency Purchase Programme (PEPP) will end in March 2022, as expected; however, the expansion of the Asset Purchase Programme (APP) is below RBC Capital Markets’ expectations of €400 billion to €500 billion in total to run until at least the end of December 2022.

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman