Fall 2022 Market Update

Lethbridge Portfolio Management
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Private Wealth Market Update

Most major financial markets had a good run throughout the summer. However, the tone seemed to change after U.S. Fed Chair Jerome Powell spoke at the Jackson Hole meetings, during the last week in August. His consensus that interest rates may need to stay elevated for longer seemed accurate, as the widely held belief that U.S. consumer inflation has peaked was incorrect…FOR NOW. After holding steady in July, the U.S. Consumer Price Index (CPI) rose 0.1% in August and 8.3% over the last 12 months according to the Bureau of Labor Statistics. For comparison, the Canadian CPI for the reported period of July from StatsCan rose 7.6% year-over-year. Whereas the Canadian August inflation data released this week, showed a drop to 7%, year-over-year.

Since last Monday’s closing levels, the major North American indexes have fallen an additional 1 to 2% throughout the week. The end result is a somewhat volatile market heading into the fall.

Index Performance 09.20.2022 2

Fast forward to this week and as expected, the Federal Reserve delivered its third 0.75% interest rate increase in a row. So, what’s the good news?! Well, financial markets are “future forecasters”. In other words, the consensus is/was that the Feds were raising by 0.75% and so the financial markets priced this in already. Although the markets are selling off post the announcement, the central banks are doing what they say they are going to do. This was also evident in the Bank of Canada’s interest rate announcement a few weeks back. Although there are still risks that the financial markets could continue to trend down, we are seeing increased confidence in the central banks around the globe in combatting inflation. There is no doubt that there are further rate increases ahead, but this doesn’t necessarily mean the financial markets can’t go up during this time.

Secondly, consumer sentiment is hovering near historical lows. This often corresponds with buying opportunities in the markets – especially in the bond markets. Given the substantial rise in interest rates this year, we are seeing volatility in bonds that we haven’t seen in nearly a decade. However, as outlined in the article “Demystifying Three Bond Myths During Rising Rates”, despite some of the general myths investors have with bonds in a rising rate environment, we are viewing this as a buying opportunity.

As we navigate these markets, rebalancing to suit your risk profile can be an important part of the process. It is also important to remember that markets are cyclical. For this reason, staying invested, diversified, and disciplined are critical for keeping long-term strategic goals in mind.

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