August 4, 2023

Mid-Year Market Update

Market volatility continues to be the order of the day in 2023.

Central banks in North America appear to be close to the end of the current hiking cycle. In North America we saw rate hikes at the July meetings, however both central banks have indicated they are close to a pause, with future rate hikes being more data dependent. Neither is willing to state that the current rate hiking cycle is over, instead they are leaving the door open for future hikes. We have also seen forecasts for when interest rates will start to decrease move out again to late 2024 or early 2025. Central Banks around the world, including the Bank of England, the European Central Bank, and the Reserve Bank of Australia, continued to raise rates in an effort to reduce inflation.

Inflation numbers are starting to come down, but food inflation stayed stubbornly high, as anyone who goes grocery shopping already knows. The job market continues to be tight, although we are now seeing some mixed signals, which is adding to the uncertainty of any future rate changes.

The effects of the higher rates are starting to show in the economy with the spring banking crisis in the US, which was a direct result of the speed and size of the interest rate hikes. We also saw the final decline and sale of Credit Suisse in Europe, one of the largest financial institutions in Europe. In both cases regulators and governments stepped in quickly to manage the situation and ensure depositors funds were accessible, essentially halting contagion. More recently we have seen the US debt ceiling negotiations cause short-lived volatility, especially in the bond markets, and oil markets were rocked by Saudi Arabia’s decision to cut production for a second time in three months. Economists are still debating how the expected recession will play out over the next several quarters, and a “rolling recession” is now more of a possibility.

Markets were especially bumpy over the spring and beginning of summer while all this played out, but experienced a narrow tech stock rally in June, fueled by interest in Artificial Intelligence, and a wider market rally at the end of July. We expect that markets will remain skittish, and react to any news with large market swings, both positive and negative. Central banks have sent the message that the fight against inflation is far from over. The higher rates have been a benefit to savers, with higher rates available on fixed income, especially in shorter term investments, but borrowers are feeling the pinch. We continue to recommend a disciplined approach to investing with a focus on long-term goals, not short-term volatility.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth isa trademark and business name under which iA Private Wealth Inc. operates.