DIARY OF A PORTFOLIO MANAGER
“She said, "You're going to miss me
Wait and you'll see"
Fully and completely”
The Tragically Hip, Fully Completely
I am going to see a Tragically Hip cover band next week so figured that the above lyrics would set the tone for that and for Make a Will month.
Your online presence
I hope that Make a Will / Financial literacy month finds you well. Last newsletter, I promised that I would share another piece of interest relating to estate planning / financial literacy. In our Matters Beyond Wealth series, here is another article:
What happens to my online accounts and assets after I am gone?
Did you know the average Canadian has between 150 to 200 online accounts? What is your executor going to do about these; will they find all of them? Click on the link and listen.
As well, RBC has produced a piece called Planning Your Digital Afterlife. If you would like to see this, click on my website link below as we posted it here:
Todd Kennedy - Client lounge (rbcwealthmanagement.com)
Your Investments
Halfway in, the month of November is proving to be one of the stronger periods of the year. Global equity and bond markets notably higher. There may be a few factors that have driven the strength of late, but none are more important than inflation trends, which continue to show signs of abating.
The most recent U.S. inflation reading was released over the past week. These days, all sorts of inflation metrics tend to get measured. But generally, there is a “headline” inflation figure that includes all categories (goods and services), and a “core” figure that removes more volatile areas such as energy and food. Both came in below expectations. More importantly, both suggested the easing in inflationary pressures continues to progress. A year ago, the year-over-year figures stood at nearly 8.0% (for headline) and nearly 6.5% (for core). Today, those figures stand at close to 4.0% and 3.2%, respectively.
In Canada, the inflation data has been telling a similar story. The figures for October will be released over the next few days. However, the figures for September, released nearly a month ago, showed an easing in inflation trends which provided some relief to investors. The Canadian headline and core figures as of September were both under 4.0%, meaningfully lower than the 6.5%-7.0% range witnessed a year ago.
What am I paying attention to? Beneath the surface, there are some pressures that remain rather intense in Canada. For example, shelter, which is the largest component (makes up about a quarter) of the Canadian CPI, continues to see notable pricing pressures. That is due to mortgage interest costs which are up nearly 30% year over year and have been the biggest contributor to Canadian CPI of late. It’s hard to imagine this moderating any time soon with the number of Canadian households expected to have to refinance their homes between now and 2026. This suggests that one of the meaningful drivers of year over year inflation in Canada may remain elevated for some time to come.
The key takeaways with respect to inflation trends differ depending on one’s perspective. As a consumer for example, falling inflation does not necessarily mean falling prices. Instead, it means that prices are not increasing by as much as they were previously. That’s an important distinction because consumers may still be faced with a relatively high cost of living compared to years ago where prices for nearly everything were significantly lower.
From an investor’s perspective, falling inflation is instead a meaningful tailwind because it raises the odds that central banks such as the U.S. Federal Reserve and Bank of Canada may not have to tighten financial conditions further by raising interest rates to fight off inflationary pressures. That is largely what has transpired this year as a fall in the rate of inflation has changed investors’ expectations around interest rate hikes and resulted in less volatility this year compared to the year ago period when inflation was accelerating.
Regardless, it is important to distinguish between the end of interest rate hikes and the beginning of interest rate cuts. For the latter to occur, a bigger fall in the pace of inflation or emergence of broader economic weakness would be required. Those scenarios are possible outcomes as we start to think of what conditions may look like at this point next year.
Have yourself a great weekend,
J. Todd Kennedy, CIM, FCSI
Senior Portfolio Manager
613-566-4582
toddkennedy.ca