Market Commentary

Making Cents of the Markets

Listen to our last Ready.Set.Retire! episode of 2022. Lori and Jon discuss the investing lessons learned in 2022 and her outlook on recession worries going forward.

Lori also explains some tax planning strategies you should consider before year-end and the importance of sector rotation during current market conditions.

Listen here or subscribe on Spotify, Apple podcasts, and Acast.

Listen now to the most recent Making Cents of the Markets on CKNW. As we anticipated the Fed’s announcement, we discussed how the rate increase would affect the remainder of 2022.

December is an important month for charitable giving, Lori reminded us of the tax benefits of donating and how to simplify the process!

Click here to listen.

Beyond the Markets

PNE Winter Fair

As the final weekend before Christmas is upon us, the PNE Winter Fair is the perfect trip for all the family. You can enjoy ice skating, holiday-themed treats and so much more!

Whether you need to pick up some last-minute gifts at the marketplace or just want to listen to the caroler’s sing, there is something for everyone.

Click here to find out more and purchase your tickets.

Be in the Know

“In the short term the stock market behaves like a voting machine, but in the long term it acts as a weighing machine” – Benjamin Graham (Warren Buffett’s teacher)

Inflation Fighting 1, Market Optimism 0

If there was one thing we wanted to go right this week for the long term, it was the U.S. headline inflation data. And it did.

The U.S. Consumer Price Index rose 7.1% in November year over year, slower than the 7.3% expected by economists and much slower than last month’s slowdown to 7.7%. Core-CPI, which takes out food and fuel prices, rose by 6% (6.1% was projected). This is the second monthly reading in a row of slowdown, a signal to the market that the Fed’s rate hikes are starting to bite.

It’s also illustrating the inevitable: once there is a steep rate hike and it holds there for a year, then the inflation rate drops to zero, even though the price doesn’t fall (this is known as the “base effect”).

Historically speaking, the Fed successfully kills inflation if it can get the Fed Funds rate above the rate of inflation. The Fed’s key rate, which they increased by an expected 50 basis points on Wednesday, now sits at 4.25%-4.50%. The Fed will likely hike again in January, perhaps only 25 basis points. They did once again cite the war in Ukraine as a significant contributor to global inflation, a war with still no end in sight. America’s new decision to send best-in-class Patriot Missile systems could help eventually force Russia to the bargaining table but there is absolutely no indication such a prospect is in the offering.

So, inflation is trending in the right direction but the Fed has offered little indication that it will let up. And this – and its risk of slowing the global economy too much – is why the good news of falling inflation didn’t last in the eyes of market participants.

Also in focus this week was much weaker consumer spending in November, with a 0.6% drop in spending (twice as much as forecast by economists). “With weak global growth and the strong dollar compounding the domestic drag from higher interest rates, we suspect this weakness is a sign of things to come,” according to Capital Economics as reported by CNBC.

China’s re-opening stands to help the global economy but those benefits may not hit until later next year, as China is forecast to hit a wall of new Covid cases.

The Stock Market Is Not a Homogenous Group

Stocks have given back some recent gains. As an update, we can once again see that riskier, higher duration (longer time until profits come) stocks on NASDAQ are suffering more than storied, mature Dow Jones Industrial Average stocks. It’s also clear that the recovery outside of tech stocks has been strongest. Market rotation can be painful but it’s a sign of a healthy market. Investors are not bearish straight across the board like they were in June.

Our Strategy

We are not the market. We have higher exposure to what is working than what is not working in today’s environment.

Our active management continues to provide important value, as our sector allocation and ability to identify leaders within helps set our strategy apart.

Although markets were down this week, we are content that our Legacy portfolios remained resilient as they held up much better. On average, despite the volatility, they were only down 1.50% on the week.

As the recession flag has been waved around quite a bit as of late, we wanted to check back and look at history to help us get a better sense of how stocks usually perform at times like these.

Using the past 13 recessions, the chart below shows that the S&P 500 (the most commonly followed US stock market) was actually in the green during a recession on average and on a median perspective as well.

Thus, it can also be said that the stock market does not move in tandem with the economy. Even though the economy could continue to slow down in times like these and stocks may follow suit initially, stocks tend to start a new uptrend during a recession. Remember, the stock market is forward-looking and moves higher before the headwinds that sent it lower pass by. A reminder to stay the course and let the strategy continue to pave the path to future opportunities.

This week, we continued to make changes to our Legacy portfolios as we shifted some exposure away from consumer discretionary stocks that tend to underperform during times of a slowing economy. We understand that this year’s downturn in markets paves the way for a future multi-year rally in stocks. The question is when will it begin…?

Visual of the Week

The comments and opinions expressed in this newsletter are solely the work of Pinkowski Wealth Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Pinkowski Wealth Management does not assume any obligation to update it or to advise on further developments related. Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.

CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA