Attempts by central banks to curb inflation with large interest rate hikes dominated news headlines in June and weighed on investor sentiment. Here’s a summary of the notable events that steered the markets.
COVID-19 and market developments
- Despite the occasional positive burst, U.S., Canadian and global equities ended June, Q2 and the first half of 2022 in the doldrums, dragged down by inflation, rate hikes and the Russia-Ukraine conflict.
- U.S. and Canadian bond yields, which move in the opposite direction to bond prices, continued to rise and peaked mid-June on forecasts for slower economic growth, before dipping slightly at month end.
- A bright spot for June was the price of oil which posted its first monthly decline since November last year, although it’s still hovering just above US$105 a barrel and up about 43-45% so far in 2022.
- There were a number of positive economic indicators during the month. The unemployment rate in the U.S. and Canada remained low, job vacancies grew and Canadian house prices continued cooling.
- The Canadian federal government finally started to relax its COVID-19 travel measures. It suspended random testing at airports and mandatory vaccination for domestic and outbound international trips.
- Ontario, which represents 40% of Canada’s economy, headed to the polls for its provincial election with Premier Ford’s progressive conservatives re-elected for a second term with a second majority.
- Alberta, Canada’s oil-producing province, which also has the world’s third largest oil reserves, recorded its first surplus in seven years following the surge in energy prices since the turn of the year.
- Despite some signs last month U.S. inflation was moderating, it disappointingly increased again, to 8.6%, with energy, food and housing costs the main contributors. Treasury secretary Yellen noted “bringing inflation down should be our number one priority.” The Fed opted for a jumbo rate hike of 0.75%, its biggest since 1994. Fed chair Powell warned another large hike was likely in July. He said it was “absolutely essential we restore price stability really for the benefit of the labour market.”
- In Canada, inflation kept climbing as well, to 7.7%, the highest since 1983, driven predominantly by gasoline prices. Higher prices for services such as hotels and restaurants also contributed while the cost of groceries remained elevated. The Bank of Canada raised rates 50 basis points for the second time, to 1.5%, and signalled rates will need to rise further to return inflation to its 1-3% target range.
How does this affect my investments?
This year has been a bumpy ride as we’ve experienced a market correction with valuations repriced for higher interest rates. While extreme swings are stressful, the worst is likely behind us or at least peaking. A clearer indication will be once we achieve a few months of declining inflation. Economic fundamentals including consumer demand, wage growth, job vacancies and corporate earnings remain healthy. It might take time, but a rebound will occur and history has 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 investing and stay focused on your long-term goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low as many investors do. Ongoing monitoring and reviewing of your portfolio also ensure 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.