Market Recovery Continues

Canadian and US Flags

At the close of business last Friday, global equities made another week of gains. However, they did shed some of their early-week gains on Thursday and Friday. Yields rose after Friday’s data was released. The yield on the US 10-year note ended at 3.57% from 3.71% before the Thanksgiving holiday while the price of a barrel of West Texas Intermediate crude oil rose $4 to $81.60. Volatility, as measured by the Cboe Volatility Index (VIX), edged down to 20.75 from 21.5.



We have seen a significant increase in the value of portfolios since the early part of October. Interest rate increases by the central banks take time to work through the system and we are only now beginning the see the effect of the early increases. We expect to see inflation, which has been stubbornly strong, begin the decline with each month going forward. We expect it will have decreased enough by the second half of 2023 to see interest rates begin to come back down. The expectation is that by 2024, the US will see inflation back in the 2% annual range.

Portfolios are still trading at significant discounts to the base case according to conversations with our analysts and fund managers. A soft landing in the US is becoming much more likely, meaning if the US falls into a recession in 2023, it will probably be very mild and short in duration. We remain bullish on the prospect of strong gains in both bond and equity markets over the month of December and well into the first quarter of 2023.

A term we are often hearing from your fund managers is “Fortress North America.” What they are referring to is that Europe and Asia likely have a tough road ahead of them for the next few years and the best place to be invested going forward will be America, followed by Canada.



Canadian GDP rose at a 2.9% annual rate in Q3 on a rise in net exports. However, preliminary data showed that economic growth was flat in October.

On Wednesday, December 7th we will get our central bank’s interest rate announcement. They have already announced that we are nearing the end of interest rate increases. However, we are expecting another modest increase on Wednesday.



Fed Chair Jerome Powell spoke on Wednesday, touching on many of the same hawkish themes that dominated the press conference after the November meeting of the Federal Open Market Committee—such as keeping rates at a high level for a considerable period. However, Powell acknowledged that the pace of rate hikes is likely to slow as soon as the committee’s December meeting. He also acknowledged that rents, an important input into the Fed’s preferred price measure, have begun to fall. However, given data lags, it will take a while before the decline shows up in the inflation calculation. Markets seized on the dovish tone, driving the S&P 500 Index 3% higher on Wednesday.

The cause of the market pulling back modestly was that markets had hoped that decelerating US jobs gains would allow the Fed to slowly take its foot off the monetary brake pedal. That hope faded Friday morning as November nonfarm payrolls rose a stronger-than-expected 263,000 and the October figure was revised higher by 23,000 to 284,000. Most alarming for the Fed was the 0.6% month-over-month jump in average hourly earnings, a gain that equalled the largest monthly jump of the year. Average hourly earnings jumped 5.1% year over year, well above the consensus forecast for a 4.6% rise. The labour force participation rate dropped 0.1% to 62.1%. The Fed would like to see participation rise, easing tightness in the labour market.

The Fed’s next interest rate announcement is scheduled for December 14th. Regional Fed speakers have already set the stage that they are nearing the end of interest rate increases. However, we still expect a moderate increase at the December announcement.



Consumer prices in the euro zone rose 10% in November from a year earlier, down from October’s 10.6% pace. Core prices rose 5% year over year in November, the same as in October. The drop in the headline rate was the first since June 2021 and came on the back of somewhat lower energy prices as Europe reached the limit of its natural gas storage capacity.



Days after anti-lockdown protests in China—some of the largest in decades—Vice Premier Sun Chunlan, the official in charge of the country’s COVID response, dropped the use of the term “COVID zero” in a sign that the government is amending its approach to controlling the virus. Sun told a meeting of the National Health Commission that “as the Omicron variant becomes less pathogenic, more people get vaccinated and our experience in COVID prevention accumulates, our fight against the pandemic is at a new stage.” Efforts aimed at vaccinating the elderly have been stepped up and officials are discussing rolling out a fourth round of shots. Local media this week quoted experts as saying there is no need to panic about the Omicron variant since it is much less deadly than earlier strains.


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