Weekly Market Commentary September 29th 2022

The Markets

Last week, the U.S. Federal Reserve (Fed) raised the federal funds rate for the fifth time this year. During 2022, the Fed has lifted its benchmark rate from near zero to 3.12 percent. Fed policymakers indicated that they expect to raise the rate again this year. That’s going to make borrowing more expensive as rates on credit cards, home mortgages and business loans increase.

Frankly, that’s the Fed’s goal. It wants to tamp down consumer and business spending, as when spending falls, demand for goods and services falls, and in theory, prices should follow suit. Lower prices mean lower inflation, but unfortunately, inflation has a long way to fall. The Fed’s inflation target is two percent, far lower than the 8.3 percent inflation that the Consumer Price Index showed in August. While not directly comparable as our baskets of goods are not exactly the same, the Canadian CPI increased by 7.0 percent over the same period.

The Fed isn’t the only central bank hiking its country’s rate. “We are experiencing one of the most synchronized bouts of monetary and fiscal tightening in the past five decades,” reported Daniel Moss of Bloomberg. Ninety central banks, including the Bank of Canada, have raised rates during 2022.

“The relentlessness with which central banks are increasing interest rates reflects alarm at rising prices — and an aversion to being portrayed as insufficiently courageous at a time of economic peril. With so much hiking, officials should fret about the broader impact of the course they are on. The recession they are courting may be no ordinary downturn.”

The possibility of a global recession was top of mind for investors last week. Major U.S. stock indices dropped to their lowest levels since President Biden took office, and Treasury yields reached multi-year highs. Although the S&P/TSX Composite index has fallen less than the indices from south of the border, it has also fared poorly and has recently experienced sharp declines.

In times like these, people often worry about how to protect the wealth they have accumulated. In the investment industry, we say that past performance is no guarantee of future results; however, during market downturns, it can be reassuring to consider current market events within the context of long-term market events.

Performance charts from any major market show that the path of investing is rarely smooth and upward – Bull markets follow bear markets with corrections along the way. The accumulation of evidence over time supports the idea that staying the course is a sound choice during market downturns. It takes patience and discipline, and it can be particularly difficult to do during times like these.

If you have any questions or concerns about your investment portfolio or recent market events, please feel free to give us a call.

Source: FactSet

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