Making sense of the markets this week: September 24, 2023

On a day-to-day foundation, Canadian customers are fighting increased debt funds. They’ve much less cash to spend and are maintaining discretionary prices to a minimal, which is hurting companies. Anecdotally, I’m seeing folks faucet into their financial savings to pay down their high-interest debt. This can solely worsen if the BoC continues to lift charges and we enter right into a recession. If that had been to occur, and we go from an interest-rate climbing cycle to an interest-rate chopping cycle, no matter credibility the BoC has will exit the window. 

The Canadian central financial institution has acknowledged that whereas its precedence is inflation—even on the threat of an financial slowdown—it acknowledges it’s strolling a high quality line. For myself, I’d moderately have 3% inflation with near full employment than combat tooth and nail to get inflation all the way down to 2% and put folks out of labor. To me, that tradeoff will not be price it.

Slide the columns proper or left utilizing your fingers or mouse to see much more information, together with June, July and August.

Canadian CPI/Core CPI by Month

U.S. CPI/Core CPI by Month

The U.S. Federal Reserve decides to not increase rates of interest

I used to be all the time of the view that the U.S. Federal Reserve would stand pat and never increase rates of interest this month. And that’s what occurred. At this level, I believe there’s lower than a 50% probability it is going to increase them at its subsequent assembly in November. I’m not alone. Many economists, analysts and buyers consider this would be the case. 

For his half, Federal Reserve Board Chair Jerome Powell’s tone stays hawkish, encouraging folks to proceed to spend conservatively. He’s unwavering in his dedication to reducing inflation to 2%. 

What does this imply for the inventory market? 

Not a lot, as massive publicly listed firms are higher geared up to deal with a slowing financial system than smaller firms. My fear as we speak is for the small companies that merely don’t have the sources to put money into applied sciences, like synthetic intelligence (AI), which may help them drive efficiencies and develop. However, these aren’t the businesses listed on inventory exchanges. 

For buyers, that is nonetheless a great time to purchase shares. The S&P 500 is up 16% yr thus far even with slower progress. Whereas there may be nonetheless speak of a recession, it hasn’t occurred but. The truth is, that speak of a recession has been pushed additional out. North American buyers, significantly these invested in U.S. shares, have fared properly.