Canadian Equities Looking Attractive

At the close of business last Friday, US equities declined for the week as inflationary concerns and margin weakness hit retailers. European equities also retreated, while Canadian and Asian equities advanced. The yield on the US 10-year Treasury note settled at 2.81% after breaching 3% earlier in the week. The price of a barrel of West Texas Intermediate crude oil increased to $112.21 from $110.04 while volatility, as measured by the Cboe Volatility Index (VIX), stabilised after rising during the week to settle at 29.35 from 29.06.



Staying Balanced

Financial market volatility is never easy to stomach, especially as one is living it in real-time.

The variability in an asset’s price path is among the few consistent experiences an investor will encounter during their journey. We have lived through a U.S. equity market correction of 10% or more eight prior times in the past decade alone, two of which were close to 20% and another one that was just beyond 35%. This is the ninth such episode. Over this same period, the equity market has compounded at 13.3% per annum. In this week’s report, we remind our readers about the importance of staying with a well-defined game plan—one that is consistent with your risk tolerance and long-term financial goals.



Canada has banned Chinese telecom equipment manufacturer Huawei from being involved in our 5G network. It is a technology that gives Canadians faster phone and internet connections. It is estimated that 5G will add $150 billion to the Canadian economy through 2040.

Privacy concerns are the main driver of the ban. Conservatives have been pushing the Trudeau government to make the move to prevent Huawei from building Canada’s 5G infrastructure, arguing that it would allow China to spy on Canadians. The United States, Britain, and Australia have also taken similar action to curb the use of Huawei technology in their countries.



US growth may exceed China’s
US growth is expected to be higher than China’s for the first time since 1976. China is continuing to struggle with COVID-related lockdowns and severe curbs on activity, while US mobility continues to normalise.

Retailers facing margin pressure
Technology stocks were not the only ones facing pressure this past week. Retailers joined the slump after several reported disappointing results and lowered earnings outlooks for the year. Higher inflation and supply chain pressures have impacted profit margins in a meaningful way. Higher goods prices have driven customers away from spending on discretionary items. In addition, customer preferences have shifted from goods to services, resulting in higher than expected retail inventories. However, overall consumer spending remains relatively strong amid a backdrop of low unemployment and healthy consumer balance sheets.



The inflation rate in the United Kingdom continued to run hot, hitting 9% in April, the highest level in decades. Bank of England Chief Economist Huw Pill said that ongoing measured and consistent tightening will be necessary to bring inflation rates down.



China’s economy appears to be slowing, with lower consumer spending and factory output as the country struggles with lockdowns. The government has offered additional stimulus by dropping the five-year loan rate, which is used to price mortgages. China’s growth target for the year is 5.5% but could be far lower unless restrictions are lifted soon. Around $5 trillion of COVID-related stimulus has been injected into China’s economy.



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