Marathon Not a Sprint

With the Summer Olympics in Tokyo nearly over at the time of writing this market update we thought we would use the sports cliché, “It’s a marathon, not a sprint”, to paraphrase the economic recovery for the beginning of the second half in July 2021. The S&P 500 maintained its’ push with another positive month edging 2.27% higher, while the S&P/TSX slowed to a normal pace with a positive 0.60% return. The global recovery has been an exciting and explosive start but it is also apparent that supply challenges and increased concerns over the Delta variant have the potential to make the remainder of the year a little tougher. With that being said, the markets in general have been winning and will continue to provide investors with growth opportunities. While conditions tighten, the gap between winners and losers becomes more apparent and good stock picking will ensure we finish the race well.
 
In the economy we begin with the IMF holding onto their 6% global growth projection but sighting concerns over “its uneven nature.” The BMO Capital Markets Economics Team trimmed their 6.5% U.S. GDP by 0.5%, calling for 6% in 2021, and 4.0% in 2022, down from 4.3%. Again, the concern is supply issues. While consumer spending is sprinting at a good clip, production is struggling to keep up with the pace which is drawing down inventories and causing prices to spike faster than normal. So far, we’re being assured by economists and strategists alike that this is transitory in nature.

Inflation is not just an issue in North America, Australia has posted a 13-year high for CPI. Prices rose 3.8% y/y in Q2 which is well above the 2.5% target. Here at home, Canada’s July CPI produced a rare event in 2021 with a dip in inflation sliding to 3.1% from 3.6% in June. A surge in used car prices was a major contributor to the U.S. inflation readings but the Fed’s main inflation gauge cooled in June, with a minor 0.4% change m/m. It is important to note that the surge in inflation will eventually pass however if the constraints mentioned earlier persist, and thereby prolong the recovery, the risks are evident. Demand remains hot everywhere, which in turn overwhelms supply shortages everywhere; in labour, supplies, and goods. Without question, we are entering into the most important monetary policy arena of our lifetime.

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