When it rains…

There’s a saying in southern Alberta where I grew up, if you don’t like the weather, wait 5 minutes. News on geopolitics and the economy feel much like that right now; lots happening and changing very quickly. Let’s recap some of the global events that are happening right now for those of us who are keeping score.

• Inflation and interest rate hikes
• The Russia/Ukraine War
• COVID-19 lockdowns and supply chain backlogs
• Potential Canadian real estate bubble deflating or popping

That’s a lot and here are some of the effects we are observing from the causes mentioned above. The fixed income market has priced in 9 rate hikes for 2022, futures markets in bonds are pricing in 3 rate cuts after 2022, which seems like a contradiction, and credit risks are likely to recover quicker than interest rate risks. Defensive sectors (Staples, Health Care, and Utilities) have taken a leadership role in March and April, which could be a sign of it being late in the economic cycle. Global markets are being driven by headlines more so than fundamentals. There’s lots of noise, and that noise will dominate; however, it tends to be shorter term and fundamentals will re-establish themselves at some point. It’s worth mentioning that the recent federal budget is showing some signs of greater fiscal restraint than we’ve seen of late. While there are new spending initiatives of ~$31 billion planned over the next five years, the total cost of the initiatives came in less than anticipated. The spending represents approximately 1% - 2% of GDP, compared to 5% for Budget 2021.

There also appears to be a rotation from growth stocks to value stocks and from tech to hard assets. While we still feel there is a strong investment case for owning tech as no one is getting rid of their iPhones or Netflix subscription anytime soon, hard assets, infrastructure and energy are likely to stay in vogue after being out of favour for years. Energy should be considered in any portfolio but one must be picky. A lot of oil and gas companies tend to be something to rent, not own and we mentioned this back in June of last year. Being passive in this market when such a large portion of global indexes are dominated by technology stocks could increase volatility in an investor’s portfolio, and active rebalancing should happen when the opportunity presents itself.

While it can be difficult to focus on the long term when volatility is so apparent, think of my earlier analogy about the weather. It’s helpful to remember that the rain stops at some point, summer will come and the sun will shine most of the time. Just keep an umbrella handy.

This newsletter has been prepared by Stephen Maser & Joe Howorko of Raymond James Ltd. (“RJL”). It expresses the opinions of the writer, and not necessarily those of RJL. Statistics, factual data and other information are from sources believed to be reliable but accuracy cannot be guaranteed. It is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. RJL, its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. This provides links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.It is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person residing in the USA. Raymond James Limited is a Member Canadian Investor Protection Fund