Investors had a lot to feel optimistic about in November as equity markets rallied again, inflation continued cooling, and the Fed signalled rate increases might be slower and smaller as we head into 2023.
- U.S., Canadian and global equities carried their promising momentum from October into November, posting back-to-back monthly gains with the Dow Jones in particular ending in bull market territory.
- U.S. and Canadian bond yields fell for the first time since the summer after better-than-expected inflation news and optimism the Fed’s rate hiking cycle is helping to win the fight against inflation.
- There were a number of positive economic indicators. U.S. hiring remained solid and consumer spending increased. In Canada, job vacancies grew as well while house prices continued dropping.
- Oil prices trended lower on the outlook for interest rates, stalling EU talks to put a price cap on Russian oil and concerns China’s “zero covid policy” would negatively impact growth and demand.
- The loonie strengthened versus the greenback on healthy employment data, improved investor sentiment, declining U.S. inflation and the Fed hinting it could slow the pace of rate hikes.
- A TFSA contribution limit of $6500 for 2023 was announced by Canada Revenue Agency.
- The Canadian federal government presented its fall economic statement. This included proposed tax credits for investing in green technologies and some new cost of living support measures.
- U.S. inflation cooled more than forecast, from 8.2% to 7.7%.This was the fourth consecutive month inflation had dipped, driven mainly by falling housing, healthcare and used vehicle prices which mitigated food and energy prices that remained elevated. The Fed raised rates 0.75% for the fourth time in a row, and signaled plans at month-end to keep hiking rates, but in smaller increments going forward.
- In Canada, inflation was unchanged at 6.9%, although economists believe it is steadily moving downwards. In its latest CPI report, Statistics Canada said rising grocery costs slowed while gasoline prices and mortgage costs climbed. Bank of Canada governor Macklem noted Canadian inflation remains too strong and rate increases are still needed to bring it down. He added “We are getting closer, but are not there yet.” The Bank’s next interest rate decision is scheduled on December 7.
How does this affect my investments?
The outlook for interest rates and inflation continues to steer markets. Although still high, the signs are inflation has most likely peaked. To be sure, we need to achieve few more months of declining inflation. Then we may see central banks shifting to smaller rate hikes, bond yields stabilizing, and equities beginning a sustained recovery. While volatility is stressful, it is a normal part of investing, even providing buying opportunities for some fund managers. History has also proven investors are rewarded over the long term.
Regardless of where we are in the market cycle, it’s important to take a disciplined approach to invest and stay focused on your long-term goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do. Ongoing monitoring and reviewing of your portfolio also ensures it remains on track. Diversifying investments reduces risk as well.
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The information in this letter is derived from various sources, including CI Global Asset Management, CI Financial, Statistics Canada, Bank of Canada, Bloomberg, Reuters, National Post, Investment Executive, Advisor.ca, Wall Street Journal, Daily Mail, Toronto Sun, TNC News, The Post Millennial, and MSN.com as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.
Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.