March 2023

Equity and Fixed Income Strategy

Rome Wasn't Built in a Day - and Inflation Won't be Defeated in That Timeframe Either

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

Investors are grappling with several risks and concerns at this point of the cycle. Continued geopolitical tension with Russia and China, a debt ceiling showdown coming in the U.S. (although our expectation is some type of agreement – as always – since a U.S. default serves neither party), economic and earnings deceleration, and higher-for-longer inflation and rates. This has mired the market in a so-called risk-off period but from our perspective, not much has really changed, and we continue to like a number of high-quality stocks, particularly in Canada. Selectivity remains key, however.

Let us tackle inflation and rates first. A narrative took hold in late 2021/early 2022 whereby inflation would quickly and “magically” come back down to 2-3% as supply chains normalized post COVID lockups. We never believed it back then (primarily because wage pressures were accelerating) and we still do not. In fact, we think that it will take until at least 2024 to get into a more acceptable inflation range. However, the point we have repeatedly made since late last year is that inflation has peaked and that the trajectory is now generally on the way down. This view continues to be reinforced by survey data showing that household inflation expectations continue to come down both in Canada and the U.S.

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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