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 March 18, 2022.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	21,818	1.7%	2.8%	15.7%
S&P 500	4,463	6.2%	-6.4%	14.1%
NASDAQ	13,894	8.2%	-11.2%	5.1%
Euro Stoxx 50	3,902	5.8%	-9.2%	12.4%
Hang Seng	21,412	4.2%	-8.5%	-26.5%

Source: Bloomberg, RBC Wealth Management

• TSX finished higher Friday, off best levels in a fairly range-bound trading session. Sectors were mixed, health care, tech and industrials the leaders, with energy, communication services and staples the laggards. Followed a big two-day rally with TSX logging its fourth straight weekly gain and setting a fresh record high (TSX now up nearly 3% on the year).

• US equities finished higher in Friday trading, near best levels. S&P (+6.2%) and Nasdaq (+8.2%) both posted best weekly performance since Nov-20. Growth a notable outperformer to value today with FANMAGs, semis, profitless tech, cloud, solar, EVs, fintech all ahead.

• Trepidation over the Fed meeting gave way to relief that the outcome was not too far from consensus expectations. Geopolitical concerns still buffeted the market, but lower oil prices and solid U.S. economic data attracted buyers.

• RBC Global Asset Management Inc. Investment Strategist Eric Savoie studied the monthly performance of the S&P 500 Index before and after the first rate hike of the 17 cycles since 1954. In the year leading up to the first hike, stocks gradually rallied across all instances. This makes sense, as the Fed would only start to hike if the economy was doing well enough to weather higher rates.

 

Update on Russia-Ukraine war

• The volatility witnessed since Russia’s invasion nearly a month ago has subsided a bit in recent weeks. Global equities have also trended in the right direction. Bond yields have reached new highs for the year. Oil prices have retreated somewhat, as have other commodities. That being said, the military conflict in Ukraine remains very active and unpredictable.

• Recent comments from Ukrainian and Russian officials have led investors to believe that there may be a glimmer of hope that some compromise and ceasefire can be reached. But, there is a long list of demands from both sides that needs to be addressed. Moreover, some of the regional and geopolitical experts we follow have expressed skepticism regarding the potential for a truce at this point, suggesting that it ultimately depends on Russia’s President, Vladimir Putin, whose objectives remain unclear. Investors should be prepared for a wide range of outcomes.

 

Economy

Canada

• Canada’s Consumer Price Index (CPI) for February rose 5.7% y/y, the fastest annual price increase since 1991 and the second straight month of inflation above 5%. The usual culprits (shelter, food, and energy) drove the February surge, with the food and energy categories alone responsible for nearly half the headline gain.

• The February jobs report, released by Statistics Canada on Friday, March 11, indicates the Canadian economy is nearing full employment. Even with a rise in labour force participation, February’s surge in employment caused the unemployment rate to decline sharply to 5.5%, from 6.5% in January.

U.S. 

• The Federal Reserve began its own rate hike campaign with a 25 basis point move to a 0.25–0.50 percent fed funds rate target range at its March 15–16 meeting. If the Fed maintains a 25 basis point-per-meeting pace into 2023, the policy rate would first exceed the Fed’s estimated 2.40 percent “neutral” rate for the economy as early as its March 2023 meeting.

• It wasn’t just the Fed’s upgraded rate hike projections that caught markets off guard, or the extent to which rates may rise this cycle, it was also the evolution of the economic outlook amid rising inflationary pressures, and waning economic growth prospects. We continue to think the near-term recession risks are low, certainly in 2022, but not low enough to ignore into 2023.

Further Afield 

• Elevated energy costs, supply chain disruptions, and reduced demand as the uncertainty of the war dampens consumer spending will all conspire to dent the European economic recovery in 2022, in our opinion. This unwelcome turn comes after the region started the year on a relatively strong footing, benefiting from the reopening of economies after lifting the COVID-19-induced restrictions.

• The Bank of England’s (BoE) decision to raise interest rates back to the pre-pandemic level of 0.75% from 0.5% came as no surprise to the market. The BoE now expects inflation to rise to “around 8%” in Q2 and says peak inflation could be “several percentage points higher” than the February 7.25% forecast.

 

Notes About Companies in Model Portfolio 

• Berkshire Hathaway (BRK.A; BRK.B) and Alleghany Corporation (NYSE:Y) today jointly announced they have entered into a definitive agreement under which Berkshire Hathaway will acquire all outstanding Alleghany shares for $848.02 per share in cash. The transaction, which was unanimously approved by both Boards of Directors, represents a total equity value of approximately $11.6 billion.

  • Alleghany Corporation owns operating subsidiaries and manages investments, anchored by a core position in property and casualty reinsurance and insurance. Alleghany's property and casualty subsidiaries include: Transatlantic Holdings, Inc., a leading global reinsurer; RSUI Group, Inc., which underwrites wholesale specialty insurance coverages; and CapSpecialty, Inc., an underwriter of specialty casualty and surety insurance coverages. Alleghany's subsidiary Alleghany Capital Corporation owns and supports a diverse portfolio of eight non-financial businesses

• Brookfield (BAM.A) and Blackstone announced that Blackstone Real Estate has acquired a 49% stake in One Manhattan West from Brookfield and Qatar Investment Authority (QIA). The deal values the office building at $2.85B. The 67-story, 2.1-million-square-foot building is part of Manhattan West, Brookfield and QIA's 8-acre, 7-million-square-foot commercial complex on Manhattan's west side.

 

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

 

Regards,

Shiuman