May 2023

Equity and Fixed Income Strategy

Stock Markets Can Continue to Climb the Wall of Worry

Stéphane Rochon, CFA, Equity Strategist; Richard Belley, CFA, Fixed Income Analyst; Russ Visch, CMT, Technical Analyst; Eric Yoo, Associate; Ernad Sijercic, Associate

For the better part of the last 12 months, numerous pundits have assured us that a recession was at hand or had already begun. Well, here we are, a third of the way through 2023, and still no recession in U.S. or in Canada. Could we see one occur before the end of the year or in early 2024? It is certainly possible, but it is still not a foregone conclusion in our view. As a reminder, we always caution against using “official” Gross Domestic Product (GDP) figures to inform us on the direction of securities markets since they are ancient history by the time they are published, and the stock and bond markets are forward looking (i.e. the stock market tells us what is going to happen in 3-6 months). Still, this data has its uses. In this case, to debunk the notion that we were already in a recession at the start of the year. Case in point, the recently released Real U.S. Q1 GDP showed a slowdown (fully expected) but still grew 1.1% annualized (down from 2.6% in Q4) as inventories shrank meaningfully, offset by continued strong consumer spending. Clearly, companies are being cautious as shown by their focus on cash conservation and cost cutting through multiple layoff announcements. The upside of this corporate behavior is that profit margins should remain robust and that the unavoidable economic re-acceleration will be further helped by inventory restocking.

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Do not hesitate to give either of us a call at 416 359-7565 or 416-359-7564 or email Sharon Kubicek or Alisa Carli if you have any questions respecting your portfolio and the prevailing investment, economic and political issues at play today.

Sharon and Alisa